A trading strategy that involves shorting stocks equivalent to 30% of a portfolio and using those funds to go long 130% of a portfolio with stocks that are expected to perform better.
To engage in a 130-30 strategy, an investment manager could rank the stocks used in the S&P 500 from best to worse on expected return, as signaled by past performance. From the best ranking stocks, the manager would invest 100% of the portfolio's value and short sell the bottom ranking stocks, up to 30% of the portfolio's value. The cash earned from the short sales would be reinvested into top-ranking stocks, allowing for greater diversification in the higher ranks.
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