Modern Portfolio Management: Active Long/Short 130/30 Equity Strategies
In Modern Portfolio Management, Leibowitz and his coauthors offer new strategies for institutional investors who want to manage their portfolios more actively by using 130/30 investment techniques. The 130/30 framework is a natural extension of the basic long-only benchmark-relative strategy that is so widely practiced. This approach seeks to exploit the opportunities that exist between the more efficient long only market and the less efficient short market. This book shows how 130/30...
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"Investment professionals know that performance is determined not just by their overweights, but also by the positions that they choose to underweight." With this brief statement, Martin Leibowitz captures the essence of what both institutional and individual investors must accomplish for active risk-taking to achieve superior results. In order to find consistent alphas and outperform the market, investors must "think outside the benchmark" in the construction of their portfolios—without taking on too much risk. Active 130/30 extensions, says Leibowitz, can provide the solution. With the growth in active extension (AE) funds over the last few years, the lines have been blurred between traditional equity and what is considered alternative equity. The basic motivation behind the active extension initiative has been the desire for more alpha return without taking on directional leverage or moving too far from traditional equity management. With its beta-one equity risk, its 100% net long base, and its clearly delineated alphas, AE can be viewed as an "incremental" expansion of standard long-only active equity. Indeed, it is these familiar and comfortable features that enable AE strategies to be kept within the basic equity allocation rather than being thrust into the generally smaller allocation dedicated to "alternatives." In addition, 130/30 products have brought transparency into the world of long/short investing, introducing another way to improve governance in the asset management industry. In Modern Portfolio Management, Leibowitz and his coauthors offer new strategies for institutional investors who want to manage their portfolios more actively by using 130/30 investment techniques. The 130/30 framework is a natural extension of the basic long-only benchmark-relative strategy that is so widely practiced. This approach seeks to exploit the opportunities that exist between the more efficient long only market and the less efficient short market. This book shows how 130/30 strategies allow asset owners and asset managers to more fully exploit an active manager's information set. The in-depth ideas presented in this volume also go well beyond the strict confines of 130/30's to shed important new light on other types of active management, including fundamental and quantitative long-only as well as the various forms of more flexible long/short funds. Modern Portfolio Management offers institutional investors many insights and exciting new ways to think about alpha generation.
Foreword The High and Low of 130/30 InvestingIntroduction Evolution of the Active Extension Concept 1Pt. 1 Active 130/30 Extensions and Diversified Asset Allocations 9Ch. 1 Active 130/30 Extensions and Diversified Asset Allocations 11Pt. 2 The Role of Quantitative Strategies in Active 130/30 Extensions 45Ch. 2 Active Extension - Portfolio Construction 47Ch. 3 Managing Active Extension Portfolios 50Pt. 3 Special Topics Relating to Active 130/30 Extensions 71Ch. 4 Active Extension Portfolios: An Exploration of the 120/20 Concept 73Ch. 5 Alpha Ranking Models and Active Extension Strategies 91Ch. 6 The Tracking Error Gap 103Ch. 7 Correlation Effects in Active 120/20 Extension Strategies 119Ch. 8 Alpha Returns and Active Extensions 135Ch. 9 An Integrated Analysis of Active Extension Strategies 149Ch. 10 Portfolio Concentration 167Ch. 11 Generic Shorts in Active 130/30 Extensions 185Ch. 12 Beta-Based Asset Allocation 197Ch. 13 Beta Targeting: Tapping into the Appeal of Active 130/30 Extensions 215Ch. 14 Activity Ratios: Alpha Drivers in Long/Short Funds 237Ch. 15 Generalizations of the Active 130/30 Extension Concept 257Pt. 4 Key Journal Articles 267Ch. 16 On the Optimality of Long/Short Strategies 269Ch. 17 The Efficiency Gains of Long/Short Investing 297Ch. 18 Toward More Information-Efficient Portfolios 323Ch. 19 Allocation Betas 343Ch. 20 Alpha Hunters and Beta Grazers 365Ch. 21 Gathering Implicit Alphas in a Beta World: New Questions about Alternative Assets 379Ch. 22 Optimal Gearing: Not All Long/Short Portfolios Are Efficient 395Ch. 23 20 Myths about Enhanced Active 120/20 Strategies413Ch. 24 Active 130/30 Extensions: Alpha Hunting at the Fund Level 429Ch. 25 Long/Short Extensions: How Much Is Enough? 467Index 501
