On Wednesday, February 27th, 2025, Burney Advisor Services hosted an educational webinar on 130-30 long-short strategies, showcasing how this approach has evolved into a powerful framework for tax-efficient investing.
Moderated by Wayne Ferbert, Senior Managing Director at Burney Advisor Services, the webinar featured investment experts Andy Pratt, CFA, CAIA and Joel Sues, CFA, CAIA, who shared insights on the strategy's implementation, benefits, and unique tax advantages.
Below are the key takeaways from the webinar.
Andy Pratt explained that a 130-30 strategy involves investing 130% of a portfolio's value in long positions while simultaneously shorting 30%. The extra 30% on both sides cancel each other out, leaving the portfolio with a net 100% market exposure.
The strategy's name is refreshingly descriptive and transparent, unlike many investment strategies with esoteric names. Pratt noted that long-short equity investing has been around since the 1940s, but 130-30 strategies gained popularity more recently.
Wayne Ferbert provided historical context on how the strategy has evolved over time. The approach started gaining popularity in the 1990s, primarily in hedge fund structures, and reached its peak in the mid-2000s when managers focused on potential extra returns through stock selection. Interest subsequently waned by the mid-2010s as many implementations didn't meet expectations.
The strategy experienced renewed interest around 2019 when online brokerages adopted zero-commission trading and direct indexing grew in popularity. Today's 130-30 landscape includes both alpha-focused managers and direct indexers with tax-focused objectives.
The webinar highlighted how the 130-30 landscape has evolved into two distinct approaches.
Andy Pratt explained that the alpha approach is rooted in more efficiently expressing both bullish and bearish views. Most active managers have opinions on both stocks they like and dislike, but face structural limitations in expressing negative views. In the S&P 500, nearly two-thirds of stocks make up less than 0.1% of the index, making it difficult for long-only managers to meaningfully underweight stocks they view negatively.
The 130-30 strategy addresses this limitation by "relaxing the long-only constraint." This allows managers to more effectively express bearish views by shorting stocks with poor prospects while simultaneously investing more in their highest-conviction long ideas.
Joel Sues explained that the direct indexing approach focuses solely on tax benefits rather than alpha generation. Direct indexers aim to match market beta while harvesting tax losses, viewing stocks within the same sector as largely interchangeable — for example, swapping Apple for Microsoft or Walmart for Target.
This approach involves selling losing positions to harvest tax losses and replacing them with "equivalent" stocks. However, these tax benefits diminish over time as portfolios appreciate. Research from AQR indicates tax benefits from direct indexing typically approach zero after a 5-year period as fewer loss-harvesting opportunities remain in rising markets.
The webinar highlighted Burney's implementation of the 130-30 strategy using their proprietary ETF (BRNY) for the long component. While many 130-30 managers focus on either alpha or tax efficiency, Burney's approach aims to address both objectives.
The long side (130%) is invested in Burney's ETF, launched in 2022, while the short side (30%) consists of individual stock positions selected by Burney's quantitative model. This structure is designed with two potential benefits in mind: the ETF structure may provide tax advantages for the long positions, while the short side may generate realized losses in rising markets that could be useful for tax planning.
Andy Pratt explained that Burney's quantitative stock selection model has historically identified underperforming stocks, which aligns with the requirements for the short side of a 130-30 strategy. This allows Burney to apply their model while working within the ETF structure.
Joel Sues presented historical performance data for Burney's 130-30 strategy, noting a 28.7% return for 2024 (net of fees and margin costs; see historical returns through 03/31/25 in chart below) and discussing performance relative to the Russell 3000 benchmark across various time periods. He mentioned that the strategy is GIPS compliant and listed on Morningstar, providing information for advisors conducting due diligence.
| Portfolio | YTD | 1-Year | 3-Year | 5-Year | Inception |
| Burney Company 130-30 SMA | -4.57% | 7.61% | 10.33% | 20.92% | 13.43% |
| Russell 3000 | -4.72% | 7.07% | 8.01% | 18.02% | 12.77% |
The performance data quoted represents past performance and is no guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For the most recent month-end performance, please call 866-928-7639 or visit the Fund’s website at www.burneyetfs.com.
In addition to the performance discussion, the presenters shared a case study using a sample $1 million portfolio from 2024. In this example, the approach generated $280,000 in returns (28.7%) while realizing $69,000 in tax losses. Based on the assumptions used in their analysis, this represented approximately $25,000 in potential tax value (assuming a 37% tax rate).
During the webinar, Andy Pratt explained their strategy approach: "We don't expect to distribute capital gains from the ETF. We do expect to realize net losses from the short side... We don't even need the short portfolio to go down in value. We just need them to underperform the longs." This statement helps illustrate how the strategy is designed to function in various market environments.
Use Cases for Advisors and Clients
The presenters outlined three primary scenarios where RIAs might consider the strategy.
Capital Gains Considerations: This strategy may be relevant for clients who generate capital gains from various sources outside their managed portfolio. As Andy Pratt explained, clients often face tax consequences from options strategies, business sales, property transactions, or rebalancing appreciated portfolios. The realized losses generated by the 130-30 strategy might be used to offset eligible gains, depending on the client's specific tax situation.
Tax-Sensitive Clients: The approach may help clients manage threshold-based taxes like higher Medicare premiums or state capital gains taxes. By offering a potential way to manage the timing of gains recognition, advisors might help certain clients address planning uncertainty around capital gains and work within tax thresholds that impact their overall financial picture.
Legacy Planning: For long-term investors, the strategy offers a potential estate planning consideration. Clients might benefit from realized losses during their lifetime while potentially deferring gains in the ETF component. If assets pass to heirs, they may receive a stepped-up cost basis on the ETF portion under current tax law, which could affect taxation on appreciation. During the webinar, one presenter noted the tax treatment has some similarities to tax-advantaged accounts in certain scenarios.
Operational Considerations
Joel Sues detailed several important operational aspects for advisors considering the strategy. The implementation is currently available at Interactive Brokers, selected for their favorable margin rates that help manage costs. Burney requires a minimum account size of $250,000 to operate the strategy efficiently and, notably, charges no additional SMA fee as they are compensated through the ETF expense ratio on the 130% long allocation.
Regarding client communications, Sues recommended that advisors prepare clients to see short positions in their portfolio statements, as this differs from traditional long-only portfolios most investors are accustomed to viewing. The presenters emphasized that 130-30 strategies are designed for sophisticated investors with aggressive risk tolerances who understand the potential risks of short selling, including the possibility of significant losses. Burney employs various risk management techniques in an effort to address these considerations.
Moving Forward with 130-30
The webinar concluded with an invitation for advisors to explore how Burney's 130-30 implementation might be suitable for certain client situations. By combining active management with an ETF structure, Burney offers an approach designed to address both investment performance and tax planning objectives.
For advisors interested in learning more about Burney's 130-30 long-short strategy or other investment solutions, please contact Burney Advisor Services.
Advisory services are offered through the Burney Company, an investment adviser registered with the U.S. Securities & Exchange Commission. Registration as an investment adviser does not imply a certain level of skill or training. Past performance is not a guarantee of future results. All investments involve risk and may result in both profits and losses. Tax information provided is general in nature. It is provided without any warranty whatsoever. Each investor's tax situation is unique and may be affected by special circumstances, so tax advice is needed before making any investment decisions.