Abstract
Extension strategies, also referred to as the 120/20 or 130/30 strategies, have emanated for the most part from the long-only managers—more specifically, from their desire to wring out greater excess returns from the existing long-only stock selection and portfolio construction processes. Quantitative firms and fundamentals-based asset management firms with sizeable central research groups have been at the forefront of the 120/20 wave. All things being equal, a rational investor should always choose a strategy that offers higher return for a unit of risk. The authors agree with the theoretical underpinning of the 120/20 strategies; therefore, they believe that 120/20 strategies merit a serious consideration by investors—a legitimate alternative to long-only equity strategies in the large capitalization arena.
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