130/30 strategy to watch in 2009 says S&P

130/30 funds is one of the trends Standards & Poor’s (S&P) will watch closely in 2009, according to Srikant Dash, global head of research and design at S& P Index and Portfolio Services (S&P).

Dash said he thought around a quarter of the share of traditional active funds will be eaten into by 130/30 funds in the near future. He was speaking at an S&P briefing in London.

“130/30 funds combine the best of indexing and asset management. You have beta exposure and the ability to express market preferences. Asset managers are moving into this area and eventually these funds will take a significant share from traditional active funds,” he said.

Steve Goldin, vice president for portfolio services at S&P, expects 130/30 funds to filter through to retail products in 2009. In terms of adoption of the funds in the UK, he is more doubtful.

“In Europe, there is more long/short and there are 130/30 products linked to the S&P Index in countries like Italy, Germany and Spain. However, there is no reason why adoption of 130/30 funds should not happen in the UK,” said Goldin.

He added that assets linked to 130/30 funds are rising all the time. “I know of one analyst who predicted there would be $1.6 trillion by the end of 2008 linked to 130/30 funds,” Goldin said.

S&P runs a 130/30 strategy index designed as a transparent index framework which can maintain S&P 500 exposure with the potential to achieve out-performance and superior risk/return characteristics.

S&P is planning to launch two strategy indexes, the S&P Global 130/30 and S&P Europe 130/30, later this year. S&P thinks new indexes will be based on over the counter (OTC) securities as the market in indexes linked to exchange traded securities begins to saturate.