Is an “integrated” 130/30 portfolio always better than a “combined” one?
There seems to be a growing level of agreement that 130/30 is different than simply adding together a “100″ portfolio (e.g. an ETF) and a “30/30″ portfolio (e.g. a market neutral fund). Some practitioners have pointed to the “untrimness” of being long and short some of the same stocks (e.g. Jacobs & Levy – see related posting). But others such as First Quadrant’s Jia Ye have argued that adding a short-extension will not always be optimal even for the alpha-producing manager due to the potential volatility of the information coefficient (see posting).
Today, guest contributor Srikanth Iyer, Senior VP and Senior Portfolio Manager, Global Systematic Strategies at Guardian Capital LP puts these two ideas together by exploring whether a so-called “integrated” 130/30 portfolio is always optimal.
130/30 “Combined” vs. “Integrated”: The Tail Wagging the Dog
http://allaboutalpha.com/blog/2008/06/05/is-an-integrated-13030-portfolio-always-better-than-a-combined-one/