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.
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.