130/30 ETN Being Offered

Posted by Bull Bear Trader | 6/02/2008 07:47:00 AM | | 0 comments »

As reported from ETFTrends, by way of Seeking Alpha and Yahoo, JP Morgan is launching the first 130/30 Exchange Traded Note (ETN). 130/30 funds were also briefly discussed in this blog a little less than a month ago in a Weekend Link Summary post. As designed, the offered ETN is a modified equal weighted total return index offering 130/30 exposure to large cap stocks.

The offering is certainly an attempt to capture the recent excitement with 130/30 funds, but as mentioned here and elsewhere, many are skeptical that 130/30 funds are nothing more than a traditional long / short fund. In fact, there appears to be nothing magical about the 30% short position, and there is no specific reason to short and only use this level of leverage. A general 1X0/X0 structure could be adapted to develop any long-short strategy that meets your own risk-reward objectives. Hopefully new research, both from academia and industry, will shed some light on whether the 130/30 structure, or something else, provides the best use of the short position and generates the highest risk-adjusted return.