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From Benedicte Gravrand: Nearly 70% of large, traditionally long-only funds have or are developing alternative development products called 130/30 funds (1). You have not doubt heard much about this new designation, as the strategy, also known as ‘short-extension’, has engendered much controversy.

Indeed, 130/30 funds have been said to be mutual funds experimenting with a risky investment strategy borrowed from the highflying world of hedge funds; that it is popular among traditional managers who are keen to cook up new tricks to court institutional investors; that the risk characteristics of these funds indicate that the short positions can increase the probability of extreme gains or losses; that it is fund management’s latest “big idea”; that the funds are out of touch with the times as they attempt to combine beta and alpha; that they will not deliver good risk-adjusted returns and that they are the worst of all worlds. Bad press, to be sure.

This strategy is de facto quite popular in the U.S.. Several big names have adopted the strategy; ING launched a 130/30 fund and so has UBS Global Asset Management. Deutsche Bank Asset Management is planning to launch one. Investment banks’ prime brokerage arms such as Barclays plc, Goldman Sachs and Morgan Stanley have endorsed such strategies. Money managers such as BlackRock Inc., Mellon Equity Associates, State Street Global Advisors and hedge funds such a......................

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