A 130/30 Strategy Index
with ETF Efficiency
With CSM, investors have access to an innovative strategy index—with the potential for
incremental outperformance of traditional long-only large-cap market indexes, with similar risk characteristics.
Thought leaders in quantitative finance, Andrew W. Lo, PhD, and Pankaj N. Patel, CFA, saw that they could replicate an
active investment strategy—like 130/30—in an index format. They took advantage of some of
the latest developments in indexing, enabled by advances in risk management, trading, and
portfolio construction.
Convenience:
Implementing a 130/30 strategy is operationally complex—even for many institutions. CSM offers investors the potential benefits of a 130/30 strategy, via a single ETF investment.
Lower cost:
The complexity of 130/30 strategies can also be prohibitively expensive to implement. CSM makes a 130/30
strategy available to investors at an expense ratio of 0.95%—lower than many other 130/30
offerings.
Tracking error
A measure of the amount of deviation that a portfolio shows over time, relative to its benchmark index. Tracking error quantifies the degree to which the portfolio differs from its index or benchmark, by measuring the standard deviation between the two values. If tracking error is measured historically, it is called 'ex post' tracking error. If a model is used to predict tracking error, it is called 'ex ante' tracking error. Ex post tracking error is useful for performance reporting; ex ante is generally used by portfolio managers as an input to a portfolio risk management process.
Leverage
In general, leverage refers to borrowing. In investments, leverage can refer to the use of borrowed funds to enhance the returns of an investment. In a more general sense, leverage can refer to the enhancement of returns through the use of a variety of financial instruments.
Efficient Portfolio
A portfolio that provides the greatest expected return for a given level of risk. An efficient portfolio is mathematically calculated and takes into account the expected return for each security and its standard deviation. An information-efficient portfolio can be understood as a portfolio that takes full advantage of the value-added information provided by a stock-ranking system in determining the portfolio's composition and weighting.
Alpha
A measure of an investment’s performance relative to its benchmark. Specifically, alpha measures risk-adjusted return – the return generated by a security, relative to the return you would expect based on its beta. An investment returning more than the return that would be expected based on its volatility is said to generate positive alpha; an investment returning less than its expected return is said to generate negative alpha.
Beta
A measure of an investment’s price variability, relative to the market in which that investment trades. Over time, an investment with a beta of 1.5 will move, on average, 1.5 times the movement of its market. Betas can change over time, and they can be different for different types of price and market movement. For instance, an investment can be described as having a greater downward than upward beta if the investment moves downward more strongly in a down market than it moves upward in an up market.
Short selling
In an investment portfolio, selling short is the act of selling securities not already owned, in the hope of profiting by buying them back at a lower price. Typically, short sellers borrow stocks from broker-dealers and immediately sell those borrowed shares in the open market, collecting the sale price from the buyer. In order to profit, the investor must buy the shares (to return them to the broker-dealer) on the open market at a lower price than the investor got by selling them.
Long-only portfolio constraint
A long-only portfolio is restricted by its investment charter to purchasing securities and selling securities it already owns. A long-only portfolio is prohibited from borrowing shares for the purpose of selling them (i.e., selling short).
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