Roger Nusbaum submits: The WSJ Online has an article about funds that implement a so called 130-30 strategy. The strategy is to first put 100% into an index like the S&P 500. Then sell short 30% in stocks expected to do worse than the market. Take the proceeds from the short sales to go long stocks likely to beat the index.
According to the article, proponents say this can add two percentage points of returns while reducing volatility. The article also has a dissenting view that says there is no free lunch.
This concept is in the same general realm of the low-beta-pairs-trading I wrote about a couple of weeks ago, at least that is the idea behind the funds. The 2% alpha mentioned seems like it could be rather unpredictable. Getting the longs or the shorts or both wrong could easily result in a lag. The article makes it seem like the longs and shorts would be bottoms-up stock-picking, which potentially adds a layer of volatility.
I am not necessarily drawn to the specific strategy of the fund, but I find it interesting that there may be more attention given to concepts that focus more on low-beta absolute returns. Here I am not talking about strategies that try to shoot the lights out, but more along the lines of capturing most of the return of the market with just a fraction of the volatility.