How some funds give more than 100% when it comes to asset allocation

Long-short strategies and use of derivatives can push fund portfolios into exposure overdrive.

Adam Zoll 23 March, 2015 | 5:00PM

Question: The portfolio breakdown for one of the funds I own shows it having more than 100% long Canadian equity exposure. How is that possible?

Answer: It can be somewhat jarring at first glance to see that a fund you own has more than 100% exposure to anything. After all, there's such a thing as being fully invested--but how can a fund be more than fully invested in a particular asset type?

When a fund's asset-allocation breakdown shows it exceeding 100% exposure to an asset class, that's a pretty good indication that it's probably not your traditional long-only mutual fund or ETF. It may be that the fund is employing a long-short strategy or using derivatives to add leverage. Let's take a closer look at how each of these strategies can result in such a lopsided asset allocation.

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Adam Zoll

Adam Zoll  Adam Zoll is an assistant site editor with Morningstar.com

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