Investors poured $1.9 billion into so-called 130/30 mutual funds in the year's first half, representing 63 percent of the category's assets...

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Investors poured $1.9 billion into so-called 130/30 mutual funds in the year’s first half, representing 63 percent of the category’s assets, yet even the experts aren’t sure what to make of the complex strategy.

For every dollar invested, 130/30 funds invest a total of $1.60 — by placing $1 in traditional long positions, then borrowing money to add a 30 cent long and a 30 cent short position. Short positions aim to profit from a decline in a stock’s price. This means the funds are net 100 percent long, as the extra short and long positions offset one another, and the leverage can enhance returns.

Kevin Means, portfolio manager of the RidgeWorth Real Estate 130/30 (SRIEX), notes the framework allows managers to profit from both their favorite, and least favorite, stock ideas. Eighteen such funds launched in the past 18 months and most are sold through advisers, says Lipper senior research analyst Jeff Tjornehoj.

While 130/30 funds employ both long and short strategies, Morningstar and Lipper categorize them separately or as large-cap funds. Like RidgeWorth, Dreyfus Premier 130/30 Growth A (DTTAX) and ING 130/30 Fundamental Research A (IOTAX) are among the retail offerings.

Other funds that mix long and short bets, like market-neutral and long-short, have been around longer than most 130/30 funds, and are designed to make up just a small part of a portfolio, says Marta Norton, a fund analyst with Morningstar. The 130/30 strategy, mostly used by institutions, is intended as a core holding.

Proponents say it can offer better returns with less volatility than a long-only strategy, but Tjornehoj says this remains to be seen.

“In theory, it is intriguing,” he says. “But I think the performance that was promised didn’t show up.”

Srikant Dash, Standard & Poor’s head of global research and design, estimates the funds, which mostly debuted less than two years ago, could gobble up 10 to 20 percent of actively managed fund assets in the next 10 to 15 years.

“There might be a steep learning curve,” he acknowledges. He also points out that any fund using short selling has a higher risk of outsize losses than a long-only fund. Morningstar’s Norton says expenses can be high and says some fund managers have little experience shorting stocks, which can be tricky.