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.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.