Hulbert Rating

Active Management

What is a Hulbert rating

A Hulbert score is a score that tracks the performance of an investment report over time. Hulbert Ratings, LLC assigns ratings to Hulbert and encourages investors to judge a newsletter based on its long-term risk-adjusted performance.

Breaking down the Hulbert note

The Hulbert ratings of the investment bulletins are determined by maintaining hypothetical investment portfolios based on the buying and selling advice of each bulletin. Hulbert Ratings, LLC then tracks the performance of the newsletter through several measures, resulting in a Sharpe ratio, a risk-adjusted performance measure.

Mark J. Hulbert, financial advisor and contrarian investor, started following Hulbert Financial Digest in 1980. After nearly thirty-six years and some high-level acquisitions, Hulbert Financial Digest has been officially put to rest. Hulbert immediately formed Hulbert Ratings LLC, which picked up where the review left off and continues to track the performance of the newsletter.

Hulbert establishes an impartial assessment of each newsletter by subscribing under the name of someone else to prevent the newsletter from sending him early advice and to inflate the performance of his hypothetical portfolio. Some newsletters are less specific in their calls to action than others. For these, Hulbert Ratings, LLC must deduct buying and selling advice to track returns.

In addition to their value as an impartial review of newsletters’ performance, the very existence of Hulbert rankings keeps newsletters honest about their performance.

Are Investment Newsletters Worth It?

After decades of Hulbert ratings, one thing is clear. Most newsletters, like most actively managed mutual funds, underperform the market. Hulbert himself has come to accept the conventional but difficult to follow wisdom that, for all available hedging techniques and sophisticated analytical instruments, an investor’s best bet is to put some money into an index fund and hold it. Hulbert even went so far as to suggest that virtually all of the changes investors make to their portfolios are mistakes.

That said, Hulbert defended the newsletters as useful given the weakness of human psychology. Specifically, Hulbert views the average investor as incapable of following the strategy of the index fund, as the average investor will panic in a bear market and end up selling low. Hulbert prefers to systematically follow a sub-optimal strategy, namely to act on the buying and selling advice of an investment bulletin, compared to inconsistently following the optimal strategy, which consists in investing in an index fund and keep during periods of slowdown.

Not everyone agrees, but investors should keep in mind the truism that the most actively managed funds and portfolios underperform the market when deciding on their investment strategies.

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