June 01, 2008 at 1:00 am by Tom Lydon
JP Morgan is the first to market with a first-of-its kind exchange traded note (ETN).
The First Trust Enhanced 130/30 Index (JFT) is a modified equal-weighted total return index that offers 130% long and 30% short exposure to large-caps. Growth factors are price appreciation over three-, six- and 12-month intervals. One-year sales growth is also a factor. First Trust is the developer of the note’s underlying benchmark.
ProShares also has a similar fund in registration, in exchange traded fund (ETF) form.
130/30 strategies are generally associated with hedge funds, reports Murray Coleman for Index Universe. In recent years, open-end mutual funds also have been putting the strategy to work. The goal in them is to get additional alpha and excess returns while netting 100% exposure to the market.
If the 130/30 strategy’s popularity in other funds is any indication, they seem to have the potential to attract exchange traded product investors. Morgan Stanley says $100 billion worldwide is in 130/30 funds, reports Matthew Hougan for Index Universe.
Roger Nusbaum of Random Roger feels that this kind of fund would work best in mature bull markets, and might work better for a buy-and-hold portfolio.
Time will tell.
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