130/30 Funds' Past Performance


Standard and Poor’s has announced that they will launch index coverage of the 130/30 Strategy. Note that this will be different from the actual universe of 130/30 funds’ performance. (See yesterday’s post on the 130/30 mutual fund structure for more information.) The key word is "Strategy". What the index will track is the S&P 500 as the core of the index plus a 1% overweight to 30 top stocks and a 1% underweight to 30 bottom picks. This is designed to provide a benchmark of sorts for the fund managers to try and beat.

Mutual_fund.jpgBasically, since there is no real 130/30 index they have attempted to create an index that is derived from the S&P 500 in a manner that is similar for the investment mandate of a 130/30 strategy. Their picks of the top 30/bottom 30 stocks is based on Standard and Poor’s STARS stock ranking system.

Money magazine published a comparison between all 130/30 funds’ performance and the "plain Jane" S&P 500 for a short period (July 19th, 2007 – October 9th, 2007) and found that the market returned 1.7% but the 130/30 funds underperformed by 2.1% for a total return of -0.4%.

For the full year ending November 9th, 2007 the S&P 500 returned 7.5% and again the 130/30 funds underperformed – this time by 1.2% for a total return of 6.3%.

ING Funds has a 130/30 fund and you can look at a Google Finance Chart here. I compared the fund’s (short) performance against Vanguard Fund’s Total Stock Market Exchage Traded Fund – which tracks the S&P 500. There isn’t enough history to make meaningful conclusions – but so far the claims of adding Alpha are not being met (at least for ING).

I’m guessing that you can expect a absolute barrage of 130/30 fund marketing and advertising in the next few years. Personally, I’ll be keeping an eye on which companies are selling them and maybe buy their stock instead!

Have a great New Year’s Eve! 

Like this article? Subscribe to Email Updates or the RSS Feed and keep up to date.  Psst… it’s FREE!

Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
Related Posts
Showing 0 comments
  • KT

    Very interesting article about funds –

    I just wanted to share a free video with anyone that explains a service we’ve been using recently to *passively* generate in excess of $100,000p.a (on top
    my salary) without doing any extra work.

    If you click on the free video link below it explains everything very concisely. This is the same research that private banks pay as much as pay up to $105,000
    PER YEAR to access.

    Here’s the link:
    http://www.investmentintelligence.com.au/cmd.php?Clk=2208474

    Leave your email address and you will get access to an amazing video

  • Sillana2

    Extraordinarity: ,