The ProShares Credit Suisse 130/30 Large-Cap Index ETF (CSM) (fund overview) began trading today. It becomes the second exchange-traded product to employ a 130/30 strategy. Using the 500 largest U.S. market cap equities as its universe, and applying a rules-based ranking and weighting methodology, the underlying index intends to provide a quantitatively constructed 130/30 U.S. large-cap equity strategy. This results in the index having total long exposure of 130% and total short exposure of 30% at each monthly reconstitution date.

130/30 funds have been one of the biggest product disappointments in the mutual fund world. On paper, these funds sound great – use 30% of the fund’s assets to sell short stocks with the least favorable outlook, and then boost the allocation of your best long ideas by 30%. The net result being a portfolio having 100% market exposure combined with a long/short twist to help provide positive alpha.

In practice, the results have been far from impressive. According to a quick screen of Morningstar data, there were 14 equity based 130/30 funds (additional share classes excluded) in operation throughout calendar year 2008. On average, they returned -39.8% versus -37.0% for the S&P 500. The best performer was CRM 130/30 Value (CRITX) (overview) with a return of -33.9%. The worst was RidgeWorth International Equity 130/30 (SCEIX) (overview) with a -54.4% return.

In May of last year, the first exchange traded product to use a 130/30 strategy hit the market with the launch of First Trust Enhanced 130/30 Large Cap Index (JFT) (ETN summary). At that time, Roger Nusbaum provided his thoughts on JFT for an article by Murray Coleman of IndexUniverse. JFT has also been a disappointment, suffering a loss of -54.2% from inception (as of 7/13/09) versus -33.4% for the S&P 500. Additionally, JFT has failed to attract assets and trading activity, placing it at #7 on the latest ETF Deathwatch list.

For ProShares, CSM represents the first of a new ETF category: Alpha ProShares, which are designed to provide advanced investment strategies in the form of ETFs. The introduction of ETFs based on quant strategies has been a growing trend. The fund’s operating expenses will be capped at 0.95%.

According to the press release, the underlying index was introduced in 2007 by Credit Suisse in collaboration with AlphaSimplex Group. It was designed by Dr. Andrew Lo, in collaboration with Mr. Pankaj Patel, CFA. Dr. Lo is Chairman and Chief Scientific Officer of AlphaSimplex Group and Harris & Harris Group Professor at the MIT Sloan School of Management. Mr. Patel is Director of Quantitative Research at Credit Suisse.

Dr. Lo and Mr. Patel described the underlying principles of this quantitative-based index in their award-winning 2008 paper, “130/30: The New Long-Only,” in The Journal of Portfolio Management.

So, the question of the day is: will the brain-trust and fire power behind CSM make it any better than its peers? The answer is: only time will tell.