Of the ETFs that enable one to gain exposure to this quantitative strategy, the ProShares Credit Suisse 130/30 (NYSEArca: CSM) has drawn the most attention.  Daniel Harrison of Index Universe analyzes this ETF in more detail and concludes that CSM has greater tracking error than the average S&P-weighted ETF, which translates into outsized gains compared to the index in certain markets.

Harrison states that CSM is attractive  because it can’t take a short position in a stock with a weighting of higher than 0.4% in the S&P, which in conjunction with an increasingly stable market environment, may enable advisors to give clients enhanced U.S. equity focus.

The 130/30 strategy in CSM uses financial leverage by shorting poor-performing stocks and buying stocks that are anticipated to have high returns. CSM tracks the Credit Suisse 130/30 Large-Cap Index.  The strategy uses a quantitative analytical system to rank all of the large-cap stocks in the U.S. market, 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 is to generate alpha superior to that of a comparable long-only cap strategy over the long run and generate higher returns.

Another 130/30 fund is the KEYnotes First Trust Enhanced 130/30 Large-Cap ETN (NYSEArca: JFT), an exchange traded note.

The 130/30 strategy is a good, unique one, but it’s important to do your homework and make sure that such a strategy is a good fit for you and your goals.

For more stories on the 130/30 strategy, visit our 130/30 category.

Kevin Grewal contributed to this article.

Direxion

The 130/30 strategy has mostly been employed by hedge funds. In such a strategy, the funds hold 130% long exposure to individual securities that are believed to outperform and 30% short exposure to securities believed to fall, Don Dion for The Street reports. The leverage works in both directions.

Last month, ProShares launched the ProShares Credit Suisse 130/30 ETF (CSM). It’s still new, but Dion notes that the average volume is “not anemic.”

For more stories about New ETFs, visit our new ETF category.

For more stories about long-short ETFs, visit our long-short category.

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).

For more stories on new ETFs, visit out new ETF category.

Kevin Grewal contributed to this article.

It looks like mutual funds are going to shatter the all-time record for liquidations, which was previously set back in 2001, reports Kevin Burke for Ignites. One wonders where all this liquid cash is running off to?

Due to the lower assets from poor performances, a number of firms may liquidate their funds in 2009 or merge to stay competitive in the market. This is a good thing. It’s not like soccer for eight-year-olds where everyone gets to play and everyone gets a trophy. By increasing competitiveness and efficiency, there will be an increased economies of scale which may lead to lower fund expenses for fund shareholders.

The first funds that will be offered onto the chopping block are probably absolute return funds and 130/30 funds that do not implement traditional institutional strategies. BRIC funds are also vulnerable because of their small asset bases and poor future prospects for taking in new assets.

With very few new products capturing the fickle eyes of fund investors, the amount of funds is going to continue to contract, but to what extent is up for debate.

On the optimistic side – we are all about the positive note – funds hacked away could be replaced in different areas of the markets, i.e. ETFs.

So far in 2008, the ETN industry has been outpacing the ETF one in terms of launches. ETNs are similar to ETFs in that they both track an index and are traded on major U.S. exchanges. ETNs have no tracking error, and are actually debt instruments that assume the risk that the provider might not be able to pay when the time comes.

The latest ETN from WealthNotes tracks the S&P 500 130/30 Total return Strategy Index, and will trade on the NYSE Arca under WNF.

The 130/30 strategy uses financial leverage by shorting poor performing stocks and buying stocks that are anticipated to have high returns. As the name implies, 30% of the portfolio value can be shorted while using the long position to focus on the stocks that will outperform, Investopedia says.

WelathShares is jumping into the ETN pond with other providers are already wading in it, including iPath, UBS E-TRACS, and Rogers ELEMENTS.