Welcome back.  Today, we bring you another in our ongoing series featuring the thoughts and perspectives of members of the CAIA (Chartered Alternative Investment Analyst) Association.  You may recognize the name Steve Deutsch from recent media articles on 130/30 investment vehicles.  Deutsch is Morningstar’s resident expert on these vehicles and therefore has a bird’s-eye view of the sector and its recent performance.  Below, Deutsch draws on his company’s extensive database to take a closer look at the 1X0/X0 phenomenon.

ALTERNATIVE VIEWPOINTS (powered by CAIA):
Some perspective on 130/30 funds, a year into the “(r)evolution”

Special to AllAboutAlpha.com by Steve Deutsch, CFA, CAIA, Director of Collective Investment Trusts/Separate Accounts, Morningstar, Inc.

Despite all the excitement about short-extension strategies, 130/30, 120/20 and other constrained ratio investment products are not that monolithic or revolutionary (Morningstar refers to them simply as “leveraged net long”).  Contrary to popular assumption, most are not purely quantitative.  Nor are they the sole domain of mutual fund companies and retail investors.  And given their short histories, many remain unproven.  As a result, it is far too early to determine if these vehicles will reach $2 trillion (or even $1 trillion, for that matter) in the next five years.

Not Monolithic

130/30 is a shared investment strategy, but that’s not a basis for large categorical conclusions.  It’s misleading when money managers or the media make broad general conclusions such as “130/30 strategies did well (or poorly) in the early days of the credit crunch market downturn.”

More…