what is the 130 30 strategy 
the 130 30 strategy often called a long short equity strategy refers to an investing methodology used by institutional investors a 130 30 designation implies using a ratio of 130 of starting capital allocated to long positions and accomplishing this by taking in 30 of the starting capital from shorting stocks the strategy is employed in a fund for capital efficiency it uses financial leverage by shorting poor performing stocks and with the cash received by shorting those stocks purchasing shares that are expected to have high returns often investors will mimic an index such as the s p 500 when choosing stocks for this strategy understanding the 130 30 strategyto engage in a 130 30 strategy an investment manager might rank the stocks used in the s p 500 from best to worse on expected return as signaled by past performance a manager will use a number of data sources and rules for ranking individual stocks typically stocks are ranked according to some set selection criteria for example total returns risk adjusted performance or relative strength over a designated look back period of six months or one year the stocks are then ranked best to worst 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 exposure to the higher ranking stocks 130 30 strategy and shorting stocksthe 130 30 strategy incorporates short sales as a significant part of its activity shorting a stock entails borrowing securities from another party most often a broker and agreeing to pay an interest rate as a fee a negative position is subsequently recorded in the investor s account the investor then sells the newly acquired securities on the open market at the current price and receives the cash for the trade the investor waits for the securities to depreciate and then re purchases them at a lower price at this point the investor returns the purchased securities to the broker in a reverse activity from first buying and then selling securities shorting still allows the investor to profit short selling is much riskier than investing in long positions in securities thus in a 130 30 investment strategy a manager will put more emphasis on long positions than short positions short selling puts an investor in a position of unlimited risk and a capped reward for example if an investor shorts a stock trading at 30 the most they can gain is 30 minus fees while the most they can lose is infinite since the stock can technically increase in price forever hedge funds and mutual fund firms have begun offering investment vehicles in the way of private equity funds mutual funds or even exchange traded funds that follow variations of the 130 30 strategy in general these instruments have lower volatility than benchmark indexes but often fail to achieve greater total returns 1