Modern Portfolio Management

MARTIN L. LEIBOWITZ is Managing Director on the U.S. Equity Strategy team at Morgan Stanley. Prior to joining Morgan Stanley in 2004, he was vice chairman and chief investment officer of TIAA-CREF. Leibowitz is a leading authority in the fields of security analysis and overall portfolio allocation strategies. He is the author of four books, including Franchise Value (Wiley), and 138 articles, ten of which have won the prestigious Graham and Dodd Award for excellence in financial writing. Leibowitz serves on a number of endowment and foundation investment committees, including Harvard University, University of Chicago, Rockefeller Foundation, Carnegie Corporation, and the Institute for Advanced Study. SIMON EMRICH is Head of Quantitative and Derivative Strategies North America at Morgan Stanley. Most recently, he has worked on issues related to alpha-beta separation and the optimization of alpha views in a benchmark-relative portfolio context, as well as on the implications of the quant meltdown during the second half of 2007. He holds degrees from the London School of Economics and Université Catholique de Louvain, in Louvain-la-Neuve, Belgium. ANTHONY BOVA, CFA, is a vice president with Morgan Stanley Equity Research's Global Strategy team, focusing on institutional portfolio strategy. Prior to his current role, Bova spent four years covering commodity chemicals at Morgan Stanley. Leibowitz and Bova recently received the ninth annual Bernstein Fabozzi/Jacobs Levy Awards for coauthoring "Gathering Implicit Alphas in a Beta World," cited as the best paper in the 2007 Journal of Portfolio Management.

• Foreword The High and Low of 130/30 Investing xiStructure of the Book xxiiiAcknowledgments xxixINTRODUCTION Evolution of the Active Extension Concept 1PART ONE Active 130/30 Extensions and Diversified Asset Allocations 9CHAPTER 1 Active 130/30 Extensions and Diversified Asset Allocations 11PART TWO The Role of Quantitative Strategies in Active 130/30 Extensions 45CHAPTER 2 Active Extension—Portfolio Construction 47CHAPTER 3 Managing Active Extension Portfolios 59PART THREE Special Topics Relating to Active 130/30 Extensions 71CHAPTER 4 Active Extension Portfolios: An Exploration of the 120/20 Concept 73CHAPTER 5 Alpha Ranking Models and Active Extension Strategies 91CHAPTER 6 The Tracking Error Gap 103CHAPTER 7 Correlation Effects in Active 120/20 Extension Strategies 119CHAPTER 8 Alpha Returns and Active Extensions 135CHAPTER 9 An Integrated Analysis of Active Extension Strategies 149CHAPTER 10 Portfolio Concentration 167CHAPTER 11 Generic Shorts in Active 130/30 Extensions 185CHAPTER 12 Beta-Based Asset Allocation 197CHAPTER 13 Beta Targeting: Tapping into the Appeal of Active 130/30 Extensions 215CHAPTER 14 Activity Ratios: Alpha Drivers in Long/Short Funds 237CHAPTER 15 Generalizations of the Active 130/30 Extension Concept 257PART FOUR Key Journal Articles 267CHAPTER 16 On the Optimality of Long/Short Strategies 269CHAPTER 17 The Efficiency Gains of Long/Short Investing 297CHAPTER 18 Toward More Information-Efficient Portfolios 323CHAPTER 19 Allocation Betas 343CHAPTER 20 Alpha Hunters and Beta Grazers 365CHAPTER 21 Gathering Implicit Alphas in a Beta World: New Questions about Alternative Assets 379CHAPTER 22 Optimal Gearing: Not All Long/Short Portfolios Are Efficient 395CHAPTER 23 20 Myths about Enhanced Active 120/20 Strategies 413CHAPTER 24 Active 130/30 Extensions: Alpha Hunting at the Fund Level 429CHAPTER 25 Long/Short Extensions: How Much Is Enough? 467About the Authors 497Index 501