By: Scott Patterson, Wall Street Journal
Published: October 13, 2006

Apparently, we’re not the only ones casting a spotlight on the recent emergence of “130/30″ funds.  As Scott Patterson of the WSJ says today:

“Mutual funds are starting to experiment with a risky investment strategy borrowed from the highflying world of hedge funds.”

Patterson interviews some serious “1X0/X0″ boosters:

“The strategy is ‘portfolio-construction nirvana,’ said Tom Digenan, U.S. equity strategist at UBS Global Asset Management, which had $400 million in the strategy as of June 30. “I think 10 years from now, this will be the way you invest in U.S. equities.”

…and some skeptics:

“Skeptics say that while the strategy can boost returns if the manager makes the right picks, it also adds significant risks, since shorting stocks can be a dicey strategy that can go horribly wrong if the market makes unexpected moves. ‘There is no free lunch here,’ said Ron Surz, president of PPCA, a San Clemente, Calif., market-research firm.”

 But both sides (hedge and traditional) seem to agree the lines are blurring between their domains:

“The strategy is ‘a blending of traditional money management and hedge-fund management,’ said Ric Thomas, head of U.S. enhanced equities at State Street, which has about $3 billion under management in the strategy, which it implemented in July 2005. ‘We’re moving into their space.’

“Perhaps not surprisingly, hedge funds are fighting back by trying to horn in on the business of more traditional money managers — arguing that they have a longer track record of short-selling than the newcomers. D.E. Shaw Group, a large New York hedge fund, recently opened up a 130/30 portfolio, managed by its new asset-management arm, D.E. Shaw Investment Management, which manages portfolios for institutional clients.”

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