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On the Performance of Extended Alpha (130/30) versus Long-Only

Ramon Tol and Christiaan Wanningen
The Journal of Portfolio Management Spring 2009, 35 (3) 51-60; DOI: https://doi.org/10.3905/JPM.2009.35.3.051
Ramon Tol
is an equity fund manager at Blue Sky Group in Amstelveen, the Netherlands.
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  • For correspondence: ramon.tol@blueskygroup.nl
Christiaan Wanningen
is an investment analyst at Blue Sky Group in Amstelveen, the Netherlands.
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  • For correspondence: christiaan.wanningen@blueskygroup.nl
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Abstract

Many have advanced the theoretical attractiveness of long-only extension products, more widely known as 130/30 strategies. In this article, the authors address the practical aspects of successfully implementing a 130/30 strategy based on an analysis of their unique database of actual manager performance for 130/30 versus long-only. The authors compare the returns of extension products with their long-only counterparts using a dataset of 73 product pairs from 53 managers, and find that 55% of the extension products have a higher information ratio than the corresponding long-only product. After testing for differences in the mean monthly alphas, the authors find that managers who deliver a higher information ratio in the 130/30 product also deliver mean monthly alphas in excess of the long-only product at a 5% significance level. Furthermore, the authors' analysis reveals that only 33% of the entire sample of managers adds value through shorting and only a small subset of managers is able to compensate for underperformance in short positions by outperforming in long positions while achieving a higher information ratio than the long-only counterpart product. The authors thus conclude that adding value in short positions is highly important in running a successful 130/30 strategy.

TOPICS: Portfolio construction, accounting and ratio analysis, performance measurement

  • © 2009 Institutional Investor, Inc.
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On the Performance of Extended Alpha (130/30) versus Long-Only
Ramon Tol, Christiaan Wanningen
The Journal of Portfolio Management Apr 2009, 35 (3) 51-60; DOI: 10.3905/JPM.2009.35.3.051

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On the Performance of Extended Alpha (130/30) versus Long-Only
Ramon Tol, Christiaan Wanningen
The Journal of Portfolio Management Apr 2009, 35 (3) 51-60; DOI: 10.3905/JPM.2009.35.3.051
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  • Article
    • Abstract
    • DATABASE AND CALCULATION METHODOLOGY
    • PERFORMANCE ANALYSIS
    • COMPARING MONTHLY ALPHAS
    • SHORTING ANALYSIS
    • CONCLUSIONS AND IMPLICATIONS FOR MANAGER SELECTION
    • APPENDIX
    • ENDNOTES
    • REFERENCES
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