PT - JOURNAL ARTICLE AU - Ramon Tol AU - Christiaan Wanningen TI - On the Performance of Extended Alpha (130/30) versus Long-Only AID - 10.3905/JPM.2009.35.3.051 DP - 2009 Apr 30 TA - The Journal of Portfolio Management PG - 51--60 VI - 35 IP - 3 4099 - https://pm-research.com/content/35/3/51.short 4100 - https://pm-research.com/content/35/3/51.full AB - Many have advanced the theoretical attractiveness of long-only extension products, more widely known as 130/30 strategies. In this article, the authors address the practical aspects of successfully implementing a 130/30 strategy based on an analysis of their unique database of actual manager performance for 130/30 versus long-only. The authors compare the returns of extension products with their long-only counterparts using a dataset of 73 product pairs from 53 managers, and find that 55% of the extension products have a higher information ratio than the corresponding long-only product. After testing for differences in the mean monthly alphas, the authors find that managers who deliver a higher information ratio in the 130/30 product also deliver mean monthly alphas in excess of the long-only product at a 5% significance level. Furthermore, the authors' analysis reveals that only 33% of the entire sample of managers adds value through shorting and only a small subset of managers is able to compensate for underperformance in short positions by outperforming in long positions while achieving a higher information ratio than the long-only counterpart product. The authors thus conclude that adding value in short positions is highly important in running a successful 130/30 strategy.TOPICS: Portfolio construction, accounting and ratio analysis, performance measurement