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Thursday, September 2, 2010

130/30 Funds Caught Short

by: Sean Hanna, Editor in Chief

Just a handful of years ago 130/30 funds were all the rage, now they are a passed fad.

By 2007 the number of leveraged funds -- those with 130/30 or 120/20 in their name -- had reached 21 from just 4 at the start of 2006. Now that number is down to 12, reports the Wall Street Journal.

The paper reports that despite the number of offerings, the leveraged funds never really caught on with investors. Even today, the dozen funds hold just $1 billion in total assets. Back when the number of funds peaked, their AUM hit just $373 million.

Data collected by Morningstar shows the entire category -- including institutional accounts -- sits at just $30 billion. That is well short of the $1 trillion that some thought the category would pull in.

At least one reason for the relative failure of the products may be peformance. A Morningstar study following the 2008 bear market showed that the leveraged funds underperformed long-only equivalents during that troubled time. Many of those funds then lagged when the market recovered the next spring.

Funds highlighted in the article include BNY Mellon's [ see profile ] 130/30 fund; Rydex/SGI Global 130/30 Strategy [ see profile], MainStay 130/30 Core and MainStay 130/30 Growth [ see profile ]. 

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