130/30 mutual funds

I ran across this article on 130/30 mutual funds in the Wall Street Journal (free WSJ Digg link). Its basic explanation of these long/short funds is:

A 130/30 fund may invest $100 in a basket of stocks, such as those in the Standard & Poor's 500-stock index, then short an additional $30 in stocks believed to be overvalued. That means the fund borrows $30 worth of those overvalued stocks, hen sells them in hopes that they can be replaced with cheaper shares later.

The article gives an indication that investing in these funds may be worthwhile for someone seeking alternative investments, but who doesn't have the money needed to invest in a hedge fund (such as the mass affluent segment).

It's too early to judge most of the 130/30 mutual funds. But Mr. Deutsch said initial results from separately managed accounts -- often run by traditional long-only money managers -- suggest the managers are beating their benchmarks and producing "alpha," or returns above those that a typical investor is expected to make based on market averages.