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Modern Portfolio Management: Active Long/Short 130/30 Equity Strategies



Modern Portfolio Management: Active Long/Short 130/30 Equity Strategies

Martin L. Leibowitz, Simon Emrich, Anthony Bova

ISBN: 978-0-470-39853-1 January 2009 511 Pages


Active 130/30 Extensions is the newest wave of disciplined investment strategies that involves asymmetric decision-making on long/short portfolio decisions, concentrated investment risk-taking in contrast to diversification, systematic portfolio risk management, and flexibility in portfolio design. This strategy is the building block for a number of 130/30 and 120/20 investment strategies offered to institutional and sophisticated high net worth individual investors who want to manage their portfolios actively and aggressively to outperform the market.

Foreword The High and Low of 130/30 Investing xi

Structure of the Book xxiii

Acknowledgments xxix

INTRODUCTION Evolution of the Active Extension Concept 1

PART ONE Active 130/30 Extensions and Diversified Asset Allocations 9

CHAPTER 1 Active 130/30 Extensions and Diversified Asset Allocations 11

PART TWO The Role of Quantitative Strategies in Active 130/30 Extensions 45

CHAPTER 2 Active Extension—Portfolio Construction 47

CHAPTER 3 Managing Active Extension Portfolios 59

PART THREE Special Topics Relating to Active 130/30 Extensions 71

CHAPTER 4 Active Extension Portfolios: An Exploration of the 120/20 Concept 73

CHAPTER 5 Alpha Ranking Models and Active Extension Strategies 91

CHAPTER 6 The Tracking Error Gap 103

CHAPTER 7 Correlation Effects in Active 120/20 Extension Strategies 119

CHAPTER 8 Alpha Returns and Active Extensions 135

CHAPTER 9 An Integrated Analysis of Active Extension Strategies 149

CHAPTER 10 Portfolio Concentration 167

CHAPTER 11 Generic Shorts in Active 130/30 Extensions 185

CHAPTER 12 Beta-Based Asset Allocation 197

CHAPTER 13 Beta Targeting: Tapping into the Appeal of Active 130/30 Extensions 215

CHAPTER 14 Activity Ratios: Alpha Drivers in Long/Short Funds 237

CHAPTER 15 Generalizations of the Active 130/30 Extension Concept 257

PART FOUR Key Journal Articles 267

CHAPTER 16 On the Optimality of Long/Short Strategies 269

CHAPTER 17 The Efficiency Gains of Long/Short Investing 297

CHAPTER 18 Toward More Information-Efficient Portfolios 323

CHAPTER 19 Allocation Betas 343

CHAPTER 20 Alpha Hunters and Beta Grazers 365

CHAPTER 21 Gathering Implicit Alphas in a Beta World: New Questions about Alternative Assets 379

CHAPTER 22 Optimal Gearing: Not All Long/Short Portfolios Are Efficient 395

CHAPTER 23 20 Myths about Enhanced Active 120/20 Strategies 413

CHAPTER 24 Active 130/30 Extensions: Alpha Hunting at the Fund Level 429

CHAPTER 25 Long/Short Extensions: How Much Is Enough? 467

About the Authors 497

Index 501