The 130-30 strategy, often called a long/short equity strategy, refers to an investing methodology used by institutional investors. A 130-30 designation implies using a ratio of 130% of starting capital allocated to long positions and accomplishing this by taking in 30% of the starting capital from shorting stocks.
The strategy is employed in a fund for capital efficiency. It uses financial leverage by shorting poor-performing stocks and, with the cash received by shorting those stocks, purchasing shares that are expected to have high returns. Often, investors will mimic an index such as the S&P 500 when choosing stocks for this strategy.
This investing strategy makes use of shorting stocks and putting the cash from shorting those shares to work buying and holding the best-ranked stocks for a designated period.
These strategies tend to work well for limiting the drawdown that comes in investing.
They do not appear to keep up with major averages in total returns but do have better risk-adjusted returns.
Understanding the 130-30 Strategy
To engage in a 130-30 strategy, an investment manager might rank the stocks used in the S&P 500 from best to worse on expected return, as signaled by past performance. A manager will use a number of data sources and rules for ranking individual stocks. Typically, stocks are ranked according to some set selection criteria (for example, total returns, risk-adjusted performance, or relative strength) over a designated look-back period of six months or one year. The stocks are then ranked best to worst.
From the best ranking stocks, the manager would invest 100% of the portfolio's value and short sell the bottom ranking stocks, up to 30% of the portfolio's value. The cash earned from the short sales would be reinvested into top-ranking stocks, allowing for greater exposure to the higher-ranking stocks.
130-30 Strategy and Shorting Stocks
The 130-30 strategy incorporates short sales as a significant part of its activity. Shorting a stock entails borrowing securities from another party, most often a broker, and agreeing to pay an interest rate as a fee. A negative position is subsequently recorded in the investor’s account. The investor then sells the newly acquired securities on the open market at the current price and receives the cash for the trade. The investor waits for the securities to depreciate and then re-purchases them at a lower price. At this point, the investor returns the purchased securities to the broker. In a reverse activity from first buying and then selling securities, shorting still allows the investor to profit.
Short selling is much riskier than investing in long positions in securities; thus, in a 130-30 investment strategy, a manager will put more emphasis on long positions than short positions. Short-selling puts an investor in a position of unlimited risk and a capped reward. For example, if an investor shorts a stock trading at $30, the most they can gain is $30(minus fees), while the most they can lose is infinite since the stock can technically increase in price forever.
Hedge funds and mutual fund firms have begun offering investment vehicles in the way of private equity funds, mutual funds, or even exchange-traded funds that follow variations of the 130-30 strategy. In general, these instruments have lower volatility than benchmark indexes but often fail to achieve greater total returns.
A 130–30 fund is considered a long-short equity fund, meaning it goes both long and short at the same time. The "130" portion stands for 130% exposure to its long portfolio and the "30" portion stands for 30% exposure to its short portfolio.
denotes the percentage of the portfolio dedicated to long positions (130 percent) and short positions (30 percent). Fund managers then use the short sale proceeds to increase their exposure to the long positions, effectively allocating 130 percent of a fund's assets to high-conviction long positions.
The primary purpose of the 130–30 funds is to tap into the large pool of assets allocated to long-only managers, while the primary rationale of the strategy is to attempt to construct more efficient portfolios by allowing limited short selling.
The methodology of the Credit Suisse 130/30 Index has two main components: the calculation of expected alpha scores for each large-cap stock in the universe and portfolio optimization.
These 130/30 portfolios are targeted to have a beta of 1.0, and are therefore also known as “beta one” strategies. The beta-one 130/30 portfolio is structured such that the net beta is targeted to be the same beta value as the index to which the strategy is benchmarked.
A 130-30 designation implies using a ratio of 130% of starting capital allocated to long positions and accomplishing this by taking in 30% of the starting capital from shorting stocks. The strategy is employed in a fund for capital efficiency.
Nutshelling. The nutshelling strategy encourages you to lay out the substance of your paper in a few sentences, or a "nutshell." This forces you to distinguish major ideas from minor ones, and to decide how the major ideas are related to one another.
Credit Suisse is taking extensive measures to deliver a new, more integrated business model, with the goal of creating value for shareholders. The bank will build on its leading Wealth Management and Swiss Bank franchises, with strong product capabilites in Asset Management and Markets.
At the end of 2022, Credit Suisse had a BIS Common Equity Tier 1 (CET1) capital ratio of 14.1% and a CET1 leverage ratio of 5.4%, in line with its peers and well above regulatory minimum requirements. For example, UBS had a CET1 capital and leverage ratio of 14.2% and 4.4%, respectively.
Credit Suisse launches major transformation plan, to cut 5% of its workforce. The global investment bank expects to radically restructure the investment bank, and reduce the group's cost base by 15%, among other priorities while a reduction of 5% of its workforce is already underway.
Also known as 130/30 strategies, systematic extension strategies involve investing in a basket of stocks, shorting another basket of stocks, then using the proceeds of those short positions to increase the long exposure.
You'd own 30% of the company and should get that much of the proceeds after expenses and liabilities once there was an equity event (sell, go public, etc). Typically equity comes into play as distributions of profit. You get paid based on the percentage of distributed profit.
A beta value of 1.5 implies that the stock is 50% more volatile than the broader market. That means higher than average risk and the potential for greater upside.
The 3-5-7 rule is a simple approach to managing your trades. Here's how it works: as your trade gains value, you take profits at three different levels—3%, 5%, and 7%. This method helps you lock in profits gradually, instead of waiting and hoping for a bigger win that might never come.
The 40/30/30 portfolio recommends an allocation of 40% stocks, 30% bonds and 30% in alternative assets. The alternative portion should be spread over assets like private credit, infrastructure and real estate.
One simple rule of thumb I tend to adopt is going by the 4-3-2-1 ratios to budgeting. This ratio allocates 40% of your income towards expenses, 30% towards housing, 20% towards savings and investments and 10% towards insurance.
The Deathwave strategy is to use the first three or four turns to destroy as many cards as possible and set up your side for Wave and Death. Then, you'll play Wave on Turn 4 or Turn 5 to limit your opponent's options while playing Death and another high-cost card at the same time.
A key objective of the Win23 strategy was to expand geographical coverage of the network as well as the range of offered logistics solutions. The expansion was achieved through both acquisitions and asset investments, primarily in ferry newbuildings and warehouse facilities.
The key to House Harkonnen's strategy lies in their Oppression ability. By spending twenty Manpower, they can Oppress a Village they control, doubling its resource production for the next three days.
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