Back in November S&P launched its 130/30 Index, a new yardstick for short-extension funds.  To create the index they added a short extension to their existing proprietary stock-selection model and chose their words carefully when describing the result…

“The S&P 500 130/30 Strategy Index is designed to measure the performance of an investment strategy that establishes over- and underweight positions relative to the S&P 500, its parent index.”

We were skeptical – noting that 130/30 amounted to simply leveraging the alpha potential of a strategy and was not really a strategy on its own (see posting).  But we didn’t confine our skepticism to S&P.  We also raised questions about the approach taken by Credit Suisse (see posting).  We reasoned that since both indices were based on proprietary models, their performance was entirely contingent on the performance of each company’s underlying investment decisions.

While S&P stopped short of saying its index was “representative” of 130/30 funds, a published index like this is obviously meant to be used as some kind of benchmark for 130/30 managers.

But now another S&P report says the best benchmark for 130/30 managers is actually an appropriate long-only index…

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