S&P Unveils 130/30 Index Product

November 19, 2007 (PLANSPONSOR.com) - Standard & Poor's has launched the S&P 500 130/30 Strategy Index, designed to measure the performance of an investment strategy that establishes 30% over- and underweight positions relative to the S&P 500.

An S&P news release said the index is rebalanced quarterly and, at each rebalancing, is comprised of:

  • A core 100% long position in the S&P 500 (the parent index),
  • 1% overweight positions in 30 S&P 500 constituent stocks (the Long Basket), and
  • 1% underweight positions in 30 S&P 500 constituent stocks (the Short Basket).

The company said that to arrive at the long and short baskets, the index employs a rules-driven framework that leverages qualitative and quantitative factors. Constituents of the overweight basket each have their weights increased by 1% relative to the S&P 500, while stocks in the underweight basket each have their weights decreased by 1% relative to the S&P 500. Since most stocks in the S&P 500 have less than 1% weight, underweight positions typically result in short exposures.

The qualitative variables used in the basket selections are from the STARS recommendations from analysts in the S&P Global Equity Research Group. They employ a scale of 1-STARS to 5-STARS, with 1-STARS equating to “strong sell” and 5-STARS to “strong buy.” These recommendations are overlaid with quantitative fundamental variables to arrive at the final long and short baskets, S&P said.

“Our goal in strategy indexing is to offer efficient exposure to particular investment approaches rather than offer performance benchmarks,” says Srikant Dash, Head of Global Research and Design at Standard & Poor’s Index Services, in the announcement. “The S&P 500 130/30 Strategy Index, a framework for indexation of these popular strategies, provides risk-controlled, long/short exposure with the prospect of outperformance in a transparent, cost-efficient format.”

A fact sheet is here .  A white paper about the index is here .