Pension funds have been early consumers of 130/30 strategies, responsible for most of the US$50 billion invested, according to a report by Merrill Lynch.

The growth of funds in this area is also expected to continue. Large quant managers “expect to see continued strong demand in the institutional arena, as their 130/30 quantitatively oriented strategies enable their pension plan clients to generate alpha in a risk-controlled fashion,” states the report.

A 130/30 strategy can be seen as an attempt to take the best from both worlds. It combines 100% long exposure, 30% of short selling and an added 30% of long exposure coming from investing the proceeds of shorting.

Merrill expects there will be strong growth in 130/30 funds this year and expects them to be “extended to a growing variety of styles, such as EAFE, growth or even sector funds, assuming the underlying securities can be shorted.”

To read the report, click here.

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