This morning, ProShares launched its newest exchange traded fund (ETF), which utilizes a 130/30 strategy. The launch of the fund marks a new category of ProShares ETFs: the Alpha ProShares.
This new ETF will be the first to utilize the 130/30 strategy and track the Credit Suisse 130/30 Large-Cap Index. The way the strategy works is that it uses a quantitative analytical system to rank all of the large-cap stocks in the U.S. market and then takes a 130% long position in the high-ranked stocks and a 30% short position in the low ranked stocks. The ultimate goal of the strategy and the ETF will be to generate alpha superior to that of a comparable long-only cap strategy over the long run and generate higher returns.
The 130/30 strategy was once predominantly found only at hedge funds and other high-priced alternative asset management firms. Now it’s available for the average investor at a relatively low cost.
The ProShares Credit Suisse 130/30 (CSM) has an expense ratio of 0.95%. Among the top companies long in the index include Exxon (XOM, 3%), Procter & Gamble (PG, 1.8%) and Microsoft (MSFT, 1.5%). Among the top companies short in the index include Nicor (GAS, 1.3%) and SLM (SLM, 1.3%).
There is an exchange traded note (ETN) that utilizes a 130/30 strategy, the KEYnotes First Trust Enhanced 130/30 Large Cap (JFT).
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Kevin Grewal contributed to this article.