If many investment consultants remain skeptical, others agree with quant managers that 130/30 could be poised for a comeback.
Artemiza Woodgate, a senior research analyst with Seattle-based Russell Investments, predicted 130/30 won't prove to be a “fad.” Quantitative managers this year are emerging from a period of rough performance, and that upswing might well set the stage for return-hungry investors to reconsider 130/30 strategies, she said.
Eileen Neill, a managing director with Santa Monica, Calif.-based Wilshire Associates, said her firm likewise remains “relatively positive” about 130/30, which can offer advantages — including transparency and the ability to add risk-controlled alpha in efficient market segments such as large-cap equities — that investors are seeking. She said 130/30 is among the strategies Wilshire is recommending to clients now, and sophisticated investors have been open to the idea.
One executive of a multibillion-dollar retirement plan, who declined to be named, said he sees 130/30 as a superior investment vehicle to a hedge fund, which by comparison is “expensive, restrictive and subject to dilution and liquidity risk. ... There is nothing proprietary about (a hedge fund's) investments, so if you find a better vehicle (such as 130/30) and competitive team then go with it,” he said.
Kevin P. Kearns, a vice president, portfolio manager and senior derivatives strategist with Loomis, Sayles & Co. in Boston, noted that earlier this year one of his firm's major institutional clients, Hartford, Conn.-based United Technologies Corp., expanded a more than $700 million long-only credit mandate with Loomis to overlay a long-short credit component, in an effort to generate alpha through credit selection “without taking directional risk.”
Especially in the context of liability-driven investment programs, that kind of arrangement could well be seen more in the future as investors seek more returns with limited downside risk, Mr. Kearns said.
Charles Van Vleet, director, pensions investments, with UTC, confirmed the details of the Loomis mandate. He declined further comment.
Other gatekeepers give 130/30 a qualified blessing. 130/30 isn't as big an idea in the marketplace as its backers initially claimed, “but there's room” for the strategy to be effective in some cases and for some market segments, said Timothy R. Barron, president and CEO of Darien, Conn.-based investment consultant Rogerscasey Inc. It will remain “an attractive way to leverage up certain strategies,” he said.