With more investment houses rolling out 130/30 funds, a small percentage of which are retail funds, financial advisers are trying to better educate investors about the funds, Investor’s Business Daily reports.
Designed to offer greater participation on the upside and lower declines on the downside, they do not protect investors against market downturns. “You can expect to do slightly better, and you can expect to be down less than the market,” explained Scott Bondurant, global head of long-short equity investments at UBS, which launched its UBS Equity Alpha Fund, a retail 130/30 fund, last September.
Year to date, the fund is up 3.51%, compared to the 3.25% its benchmark, the Russell 1000, has returned, and the S&P 500’s 3.22% return. Since Russell 1000 peaked on July 13, the index has fallen 6.11% and the Equity Alpha fund has done slightly better, giving up 5.55%.
Likewise, in the past month, the S&P 500 has fallen 4.89%, whereas Equity Alpha has declined only 0.72%, Mainstay 130/30 Growth Fund has lost 3.08%, Maintstay 130/30 Core Fund is down 0.74%, and ING 130/30 Fundamental Research has shed 1.4%.
However, Todd Trubey, a senior analyst at Morningstar, says that while 130/30 funds have shown to perform as they have been designed recently, they are too new a category to determine their long-term performance.
Part of the misunderstanding about 130/30 funds is that investment firms tend to compare them to hedge funds, said John Forelli, senior vice president at Independence Financial Advisors. “I wouldn’t use these funds as a hedge for 100% protection against a down market,” he said.
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