What is the '130-30 Strategy'

The 130-30 strategy is 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.

BREAKING DOWN '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.

  1. 130/30 Mutual Fund

    A mutual fund that has long positions and short positions in ...
  2. Net Long

    Net long refers to a condition in which an investor has more ...
  3. Net Short

    Net short is a portfolio or trading position leveraged to an ...
  4. Long/Short Equity

    Long/short equity is an investing strategy of taking long positions ...
  5. Short Market Value

    The market value of securities sold short through an individual's ...
  6. Covered Bear

    A trading strategy in which a short sale is made on a long position. ...
Related Articles
  1. Investing

    3 ETFs for High Net Worth Individuals (CSM, QAI)

    Examine some of the exchange-traded funds (ETFs) that are designed to appeal to high-net-worth individuals (HNWIs) through the funds' strategies and types of investments.
  2. Managing Wealth

    Value Investing & Short Selling Are Like Oil & Water

    To be a good value investor, you need to find and buy bargain stocks but more importantly, you have to stick to the trade until the market recognizes the worth of these securities.
  3. Investing

    Enhance Your Portfolio With Active Equity

    This strategy provides the potential for larger returns while using less capital.
  4. Investing

    Why Short Sales Are Not For Sissies

    Short selling has a number of risks that make it highly unsuitable for the novice investor.
  5. Investing

    Short Selling Risk Can Be Similar To Buying Long

    If more people understood short selling, it would invoke less fear, which could lead to a more balanced market.
  6. Investing

    Using Short ETFs to Battle a Down Market

    Instead of selling your stocks to get gains, consider a short selling strategy, specifically one that uses short ETFs that help manage the risk.
  7. Investing

    Rules and Strategies For Profitable Short Selling

    Short sales work well in bull and bear markets but strict entry and risk management rules are required to overcome the threat of short squeezes.
  1. What is the difference between a short position and a short sale?

    Learn how short selling and short positioning are different, specifically in regards to the nature of the commodity being ... Read Answer >>
  2. What's the difference between a long and short position in the market?

    Long positions in a stock portfolio refers to stocks that have been bought and are owned, whereas short positions are those ... Read Answer >>
  3. What is the difference between a short squeeze and short covering?

    Learn about short covering and short squeezes, the difference them and what causes short squeezes. Read Answer >>
  4. How is the short interest of a company related to a short squeeze of a company?

    Learn about the short interest and short squeeze, how to determine if a stock is a short squeeze candidate and how short ... Read Answer >>
  5. What Part of a Company's Float Can Be Shorted?

    The quick answer: The number of shares shorted can actually exceed 50% of the float in a company. Read Answer >>
Hot Definitions
  1. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  2. Entrepreneur

    An Entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture. ...
  3. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  4. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  5. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  6. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
Trading Center