A swathe of 130/30 funds are expected to be launched in the UK over the next few months due to the greater flexibility being offered by the UCITS III structure, according to UBS.
The funds, which mix long-only portfolios with short positions, have been popular in the US and research from Morgan Stanley estimates that nearly US$30 billion is currently invested in 130/30 style funds globally. It is hoped that the introduction of 130/30 portfolios will add to the repertoire of traditional managers and produce greater innovation and flexibility.
UBS is preparing to launch of one of the UK’s first 130/30 equity funds allowing UK investors to access a strategy which has been highly successful in the US.
The fund, UBS US 130/30 Equity Fund, is due to launch on 6 July 2007 and offers a 1% initial charge discount for those investing between 29 June and 6 July.
The 130/30 strategy involves investing 100% of the fund in a normal, long portfolio. The fund manager then borrows the equivalent of 30% to invest in short opportunities and uses the proceeds to boost the long portfolio to 130%.
Thomas J. Digenan, UBS Fund Manager, says the strategy allows fund managers to fully utilise their research capabilities. Funds adopting a long-only position will be researching both long and short opportunities but will not invest in the short position and will lose out on potential alpha.
A 130/30 fund will use both underpriced and overpriced stock opportunities to generate higher outperformance over the medium to long-term than a standard long-only fund.
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