130-30 Strategy

AAA

DEFINITION of '130-30 Strategy'

A strategy that uses financial leverage by shorting poor performing stocks and purchasing shares that are expected to have high returns. A 130-30 ratio implies shorting stocks up to 30% of the portfolio value and then using the funds to take a long position in the stocks the investor feels will outperform the market. Often, investors will mimic an index such as the S&P 500 when choosing stocks for this strategy.

INVESTOPEDIA EXPLAINS '130-30 Strategy'

To engage in a 130-30 strategy, an investment manager could rank the stocks used in the S&P 500 from best to worse on expected return, as signaled by past performance. From the best ranking stocks, the manager would invest 100% of the portfolio's value and short sell the bottom ranking stocks, up to 30% of the portfolio's value. The cash earned from the short sales would be reinvested into top-ranking stocks, allowing for greater diversification in the higher ranks.

RELATED TERMS
  1. Short Selling

    The sale of a security that is not owned by the seller, or that ...
  2. 90/10 Strategy

    An investing strategy that involves deploying 90% of one's investment ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that ...
  4. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  5. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  6. Standard & Poor's 500 Index - S&P ...

    An index of 500 stocks chosen for market size, liquidity and ...
Related Articles
  1. Options & Futures

    6 Asset Allocation Strategies That Work

    Your portfolio's asset mix is a key factor in whether it's profitable. Find out how to get this delicate balance right.
  2. Active Trading Fundamentals

    When To Short A Stock

    Learn how to make money off failing shares.
  3. Investing Basics

    5 Things To Know About Asset Allocation

    Overwhelmed by investment options? Learn how to create an asset allocation strategy that works for you.
  4. Trading Systems & Software

    Backtesting: Interpreting The Past

    We offer some tips on this process that can help refine your current trading strategies.
  5. Active Trading Fundamentals

    Short Selling Tutorial

    Want to profit on declining stocks? This trading strategy does just that.
  6. Trading Strategies

    What is the Difference Between Institutional Traders and Retail Traders?

    The differences between retail and institutional traders lie in the size of the trade, level of sophistication, and the speed of transactions.
  7. Stock Analysis

    Is Prospect Capital Exposed To Elevated Losses?

    According to a federal government report, the quality of leveraged loans has begun to deteriorate. Prospect Capital specializes in these types of loans.
  8. Trading Strategies

    Motif Investing Broker Review: Easy Thematic Investing

    A review of Motif Investing, a new online brokerage that brings thematic investing to individual investors and financial advisers for a flat fee.
  9. Mutual Funds & ETFs

    The Impact of the Janus Market Timing Ruling

    A look at the impact of the Janus Supreme Court ruling on market timing.
  10. Stock Analysis

    How Is SandRidge Energy Really Looking To Grow?

    SandRidge Energy is following the playbook of almost every other oil and gas company in the country: cutting spending and delivering meager growth.

You May Also Like

Hot Definitions
  1. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  2. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  3. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  4. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  5. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  6. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
Trading Center