130-30 Strategy Law and Legal Definition

130-30 strategy refers to a plan that uses financial leverage by minimizing poor performing stocks and purchasing shares that are expected to have high returns. A 130-30 ratio implies shorting stocks up to 30% of the portfolio value and then using the funds to take a long position in the stocks that the investor thinks will outperform the market. For engaging 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. The cash earned from the short sales would be reinvested into top-ranking stocks and allows for greater diversification in the higher ranks.