There has been a flurry of activity in the 130/30 space so far this month that seems to rival the hoopla over US college basketball.  No sooner had Merrill Lynch released its report on 130/30 than State Street landed a 165 million GBP 130/30 mandate from Britain’s Asda Group.  With some industry insiders saying the current size of the US 130/30 market is US$50b AUM, that would be nearly 0.7% overnight growth had it happened on that side of the pond.

State Street has been an ardent advocate of 130/30 for some time.  This enthusiasm culminated in the recent launch of a 130/30 strategy that is compliant with European pension regulations (although SSgA’s French subsidiary seems to have done a “soft launch” back in December of the same strategy and now manages around 450 million EUR using it).  According to SSgA, its ”Global Alpha Edge” is only the first of several 130/30 products the firm plans to launch in 2007.  Apparently, the France-listed SSgA “North American Edge” is the latest such entry (launched: March 15, 2007 according to SSgA’s French website).

Here’s what Asda Group seems to have bought.  According to State Street, Global Alpha Edge uses:

“…an active, bottom-up quantitative stock selection process, which allows us to identify the best stocks within each country and industry, while tight sector and country/region constraints provide additional risk control disciplines. With approximately 3,000 stocks in the global stock universe, quantitative techniques are particularly well suited to such a broad mandate. The Global Alpha Edge Strategy can be described as a style and capitalization neutral, core strategy. It seeks to deliver consistent out performance across environments favoring either value or growth. The Strategy seeks to achieve higher returns and information ratios by implementing net short positions in stocks rated poorly in our models matched by additional long positions in stocks rated favorably. This maximizes the efficient capture of SSgA’s stock selection value added.”

The strategy generally takes on around 350 positions spread around the globe.  So needless to say, this is a highly quantitative strategy – making its goal of sector, market cap & geographic neutrality (or, more accurately neutral bias) a legitimate, if not extremely difficult, one.  According to the fact sheet for SSgA France’s Global Alpha Edge fund, it was overweight around a full percentage point in 3 countries and underweight nearly a percentage point in three others (among 23 countries invested) on February 28, 2007.  To a lesser degree it was also overweight or underweight several sectors.

SSgA isn’t just the latest 130/30 bandwagon-jumper.  Sean Flannery (right), CIO Americas at SSgA is obviously a disciple of Roger Clarke and Harindra de Silva – whose research extended the Fundamental Law of Active Management and paved the way for the 130/30 pitch.

It’s early days still for 130/30 funds. Performance since the mid-December launch of the French version of Global Alpha Edge has been somewhat lackluster. But with US$1.7 trillion AUM and a quantitative bent, State Street is a formidable player in the alpha-centric investing arena.  So with the 130/30 market growing in leaps and bounds these days, stay tuned for a lot more talk of the “efficient capture of SSgA’s stock selection value-added” this year.  The madness over 130/30 might not be confined to March.