130/30 fund first in Canada

Date: Wednesday, February 27, 2008
Author: Barry Critchley, Financial Post

In some circles, 130/30 could be a measure of one's blood pressure. In pension fund circles, it means something else: the slew of funds that have been offered in the past few years that have 130% exposure to long positions and 30% exposure to short positions.

In this way, the 130/30 product provides market exposure or beta, but also enables the fund to generate additional alpha, a highly desirable situation. In summary, the fund devotes 1.3 times the capital to the stocks the manager likes and 0.3 times the capital to the stocks the manager doesn't like.

"This type of structure is a much more efficient way to add value than in long-only portfolios and a much more efficient implementation of a manager's insight," said Mark Doyle, a vice-president and senior client advisor for JPMorgan Asset Management (Canada). "Over the years, it has been tough to outperform the S&P 500 index," added Doyle, whose firm announced yesterday it had signed up its first Canadian pension fund client for a 130/30 fund.

Doyle wouldn't provide the name of the client, except to say it wasn't a government-related entity, that it was a fund based in Western Canada and that it had committed US$100-million. And the fund will be investing in U.S. stocks via a pooled entity known as the JPMorgan US large cap 130/30 fund. And the client signed on after JPMorgan -- which manages $14-billion of pension fund assets -- had spent about two years marketing the concept.

Doyle said 130/30 funds have been around the United States for about 3½ years and have accumulated about US$50-billion of assets. JPMorgan said over that period its 130/30 fund (home to about 160 stocks, or 60 more than in a typical long-only fund) has outperformed the S&P 500 index.

Some local providers, including TD Asset Management, have marketed 130/30 funds focusing on the local equity market.