Special to AllAboutAlpha.com by: Aquico Wen, CPA, CFA, Chief Investment Officer & Young Chow, CFA, CAIA, Quantitative Analyst, Esemplia Emerging Markets

Advocates of “short-extension” or “alpha-extension” strategies such as 130/30 funds often point out that traditional long-only managers are only able to bet against a stock by as much as that stock represents in the benchmark index. After all, they argue, you can do no more than simply deciding not to hold a stock at all.

This logic applies in spades to emerging markets, where indexes are just as concentrated, if not more so. This installment of our “Alternative Viewpoints” column by a member of the CAIA Association, Aquico Wen, and Young Chow of Esemplia, a subsidiary of Legg Mason, shows how removing the long-only constraint can have an even more dramatic effect on emerging markets managers than on managers in more mature markets.

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