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, includingFranchise 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 2007Journal of Portfolio Management.

Foreword The High and Low of 130/30 Investing xi

Structure of the Book xxiii

Acknowledgments xxix

INTRODUCTION Evolution of the Active Extension Concept 1

PART ONE Active 130/30 Extensions and Diversified Asset Allocations 9

CHAPTER 1 Active 130/30 Extensions and Diversified Asset Allocations 11

PART TWO The Role of Quantitative Strategies in Active 130/30 Extensions 45

CHAPTER 2 Active ExtensionPortfolio Construction 47

CHAPTER 3 Managing Active Extension Portfolios 59

PART THREE Special Topics Relating to Active 130/30 Extensions 71

CHAPTER 4 Active Extension Portfolios: An Exploration of the 120/20 Concept 73

CHAPTER 5 Alpha Ranking Models and Active Extension Strategies 91

CHAPTER 6 The Tracking Error Gap 103

CHAPTER 7 Correlation Effects in Active 120/20 Extension Strategies 119

CHAPTER 8 Alpha Returns and Active Extensions 135

CHAPTER 9 An Integrated Analysis of Active Extension Strategies 149

CHAPTER 10 Portfolio Concentration 167

CHAPTER 11 Generic Shorts in Active 130/30 Extensions 185

CHAPTER 12 Beta-Based Asset Allocation 197

CHAPTER 13 Beta Targeting: Tapping into the Appeal of Active 130/30 Extensions 215

CHAPTER 14 Activity Ratios: Alpha Drivers in Long/Short Funds 237

CHAPTER 15 Generalizations of the Active 130/30 Extension Concept 257

PART FOUR Key Journal Articles 267

CHAPTER 16 On the Optimality of Long/Short Strategies 269

CHAPTER 17 The Efficiency Gains of Long/Short Investing 297

CHAPTER 18 Toward More Information-Efficient Portfolios 323

CHAPTER 19 Allocation Betas 343

CHAPTER 20 Alpha Hunters and Beta Grazers 365

CHAPTER 21 Gathering Implicit Alphas in a Beta World: New Questions about Alternative Assets 379

CHAPTER 22 Optimal Gearing: Not All Long/Short Portfolios Are Efficient 395

CHAPTER 23 20 Myths about Enhanced Active 120/20 Strategies 413

CHAPTER 24 Active 130/30 Extensions: Alpha Hunting at the Fund Level 429

CHAPTER 25 Long/Short Extensions: How Much Is Enough? 467

About the Authors 497

Index 501