As the footnote to Chuck Jaffe’s recent MarketWatch piece on 130/30 suggests, his opinion carries a lot of weight (”His work appears in dozens of US newspapers”).  So when he presented such a negative view of short-extension strategies, we felt compelled to explore his arguments further.  Unfortunately, while he presents an adequate understanding of the strategy, he is too quick to write off the approach.

His April 20th commentary is entitled “Long on shortcomings: Numbers don’t add up for faddish 130/30 funds” and his main argument is that “early returns don’t seem to justify the hype”. While that may indeed be the case, extrapolating from these early returns is premature at best and totally inappropriate at worst.

Headline-writers as “dozens of US newspapers” are getting creative with Jaffe’s piece:

• “As the latest fad in funds, 130/30 is looking overblown”
• “Fidelity follows dubious fad by opening 130/30 fund”
• “Look beyond hype of trendy plans like 130/30 fund”

Stretching the data

Unfortunately, readers in dozens of US cities are now getting the wrong idea about 130/30 funds.

For example, Jaffe references research conducted by the UK-based Investment Week magazine:

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