“Investors, particularly those who take a more sophisticated approach to constructing their portfolios, are expressing interest in funds that adopt institutional-like strategies for achieving attractive risk-adjusted returns,” said Sanjiv Mirchandani, president, Fidelity Personal and Workplace Investing Growth Business. “We believe Fidelity 130/30 Large Cap Fund could be a compelling large-cap equity option within a diversified portfolio.”
“Interest in long-short products also is increasing among advisors,” said Marty Willis, executive vice president, Fidelity Investments Institutional Services. “Advisors are beginning to recommend long/short solutions, particularly 130/30 structures, for their clients seeking attractive risk-adjusted returns.”
The 130/30 Strategy
“130/30” refers to the 130% of investments in the portfolio invested “long” (or bought with the expectation that the stock will outperform the market) and the 30% of investments in the portfolio held “short” (or those borrowed and sold with the expectation that they will underperform). The added 30% of long exposure comes from investing the proceeds of short sales. The goal of a 130/30 strategy is to provide 100% market exposure (beta = 1), but with a better risk-adjusted return than other strategies that target the same benchmark.
Fidelity 130/30 Large Cap Fund will be managed by Keith Quinton, a seven-year Fidelity veteran and the manager of Fidelity Disciplined Equity Fund, Fidelity Tax Managed Stock Fund and Fidelity Advisor Tax Managed Stock Fund. He has nearly 25-years of investment management experience including specific expertise in quantitative analysis.
According to a press release, Quinton will use a combination of Fidelity’s fundamental research and fundamentally based quantitative models to select long and short investment ideas. From this integrated investment process, the portfolio will measure its performance against the S&P 500 while maintaining market-capitalization and style exposures similar to that of the index. According to Fidelity, selling securities short may help manage the fund’s overall risk profile, but can also introduce some unique risks. I
Fidelity says that the fund will have the typical risks associated with equity investing and some risks that are specific to the 130/30 approach such as the complexity of managing short sales and the potentially larger losses from short sales compared to long positions. In addition, the fund will have expenses not typically associated with mutual funds such as interest and dividend expenses on short positions.
Fidelity 130/30 Large Cap Fund is available directly to investors and through advisors at banks, insurance companies and broker-dealers via Fidelity Advisor 130/30 Large Cap Fund (classes A, T, B, C and Institutional).