Mutual fund investors now boarding the 130/30 express
May 16th, 2007 | Filed under: 130/30While 130/30 funds (nee long-bias hedge funds) have become all the rage for institutional investors such as pension funds, here is more evidence that the strategy also represents a hedge fund Trojan horse with retail investors. Russell Investments recently announced that it would add more 130/30 to two of its retail mutual funds (press release).
Says the firm’s May 1st press release, it is 130/30-izing its Quantitative Equity and Equity Q Mutual funds (both subadvised in part by Aronson+Johnson+Ortiz) to “provide upside return potential without significantly increasing risk at the total fund level.” (interesting sidebar: Aronson+Johnson+Ortiz calculates its fees on gross assets managed. So a 130/30 mid-cap strategy costs 160% of a regular mid-cap strategy.)
Russell has probably done a lot of homework here - and press releases such as this tend to go through extensive internal filtering. So the way the firm positions these funds can provide insight into the trends that are pulling them into existence. For example, advisers know that 130/30 is essentially the same as 100 + 30/30. Russell’s press release acknowledges the plethora of market neutral offerings available today, but says their offering has two advantages:
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[…] Another notable example is hedge funds. One of the key reasons behind the rise of the hedge fund has been the claim that they generate returns uncorrelated with major asset classes. (As assets have flowed into hedge funds there is a belief that they are becoming more correlated, but that is neither here nor there.) While individual investors do have some limited access to hedge fund-like strategies, i.e. long-short equity, by and large individual investors are by and large shut out from the hedge fund world. […]