Debunking 130/30 Benchmarks

Abstract

Benchmarking investment performance is a critical tool for managers, plan sponsors, trustees, and consultants to measure both the skill and the risk taken by an active approach. Plan sponsors and others can effectively measure the risk a manager assumes in deviating from traditional passive indexes. Yet, the evolution of directionally long strategies has confused some in the investment community into perceiving these strategies to be more exotic than they are. Specifically, the shorting component of 1X0/X0 strategies has led some to believe—incorrectly—that the directionally long approach is akin to an alternative strategy. By this flawed reasoning, these managers should be treated and measured differently than traditional long-only managers. We wholeheartedly disagree.