The 130/30 strategy is an investment strategy that involves a combination of long and short positions in a portfolio. The strategy allows fund managers to take both bullish (long) and bearish (short) positions in various securities, with the goal of outperforming the overall market.

Here’s how the 130/30 strategy works:

1. **Long Positions (130%):** The fund manager takes a long position in securities that are expected to perform well. This involves buying stocks the manager believes will increase in value.

2. **Short Positions (30%):** Simultaneously, the fund manager takes a short position in securities expected to perform poorly. This involves borrowing shares and selling them with the expectation of buying them back at a lower price in the future.

The sum of the long and short positions results in a net exposure of 100% (130% long – 30% short = 100%). Despite the name “130/30,” the actual net exposure is 100%, and the long and short positions together total 160%.

**Objectives of the 130/30 Strategy:**

1. **Enhanced Returns:** The strategy aims to generate excess returns by leveraging both long and short positions. By going long on stocks expected to outperform and short on those expected to underperform, the fund seeks to outpace the benchmark index.

2. **Risk Management:** The short positions allow fund managers to hedge against market downturns. If the market experiences a decline, the gains from the short positions can offset losses in the long positions, potentially reducing overall portfolio volatility.

3. **Active Management:** The strategy requires active management and a thorough analysis of individual stocks. Fund managers need to constantly assess market conditions and adjust their positions accordingly.

It’s important to note that the 130/30 strategy involves higher levels of leverage and complexity compared to traditional long-only strategies. Therefore, it may not be suitable for all investors, and careful risk management is crucial. Additionally, the success of the strategy depends on the fund manager’s ability to accurately identify both overvalued and undervalued securities.