July 23, 2009

ProShares Launches 130/30 Fund

This 130/30 fund is linked to the Credit Suisse 130/30 Large-Cap Index. It aims to invest 130 percent of assets in long positions, which increase in value if stocks rise, while 30 percent is in short positions, which benefit if stock prices fall.

ProShares introduced the ProShares Credit Suisse 130/30 (CSM) on July 15. The fund is linked to the Credit Suisse 130/30 Large-Cap Index, developed by MIT finance professor Andrew Lo and Credit Suisse director of quantitative research Pankaj Patel.

The 130/30 concept employs a hedge fund like strategy of marrying long holdings with short.

A 130/30 fund will typically invest 130 percent of its assets in long positions, which increase in value if stocks rise, while 30 percent of the fund is invested in short positions, which benefit if stock prices fall. The strategy is often sold under the premise it can provide protection in down markets and add broader diversification.

The 130/30 strategy is still new and an unproven strategy in the world of real life performance.

Since its inception during the spring of last year, the First Trust Enhanced 130/30 ETN (JFT) has lost around half its value.

For advisors that don't like the taxation and credit risk associated with ETNs, Fidelity Investments offers a 130/30 large cap mutual fund (FOTTX).

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