Hulbert Rating

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

The Hulbert ratings of investment newsletters are determined by maintaining hypothetical investment portfolios according to the buy and sell advice of each newsletter. Hulbert Ratings, LLC then tracks the performance of the newsletter by multiple metrics, culminating in a Sharpe ratio, a measure of risk-adjusted performance.

Financial advisor and contrarian investor Mark J. Hulbert began tracking newsletter performance in Hulbert Financial Digest in 1980. After nearly thirty-six years, and a couple of high-profile acquisitions, Hulbert Financial Digest was officially laid to rest. Hulbert immediately formed Hulbert Ratings LLC, which picked up where the digest left off and which continues to track newsletter performance.

Hulbert establishes an impartial evaluation of each newsletter by subscribing under someone else’s name to prevent the newsletter from sending him tips early and inflating the performance of his hypothetical portfolio. Some newsletters are less specific in their calls to action than others are. For those, Hulbert Ratings, LLC must infer buy and sell advice to track returns.

Aside from their value as an impartial review of newsletter performance, the very existence of Hulbert ratings helps keep newsletters honest about their performance.

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 agree with the conventional but hard-to-follow wisdom that, for all the sophisticated hedging techniques and analytical instruments available, an investor’s best bet is to dump a sum of money into an index fund and hold it. Hulbert has even gone so far as to suggest that virtually all changes investors make to their portfolios are mistakes.

That said, Hulbert has defended newsletters as useful given the weakness of human psychology. Specifically, Hulbert views the average investor as incapable of following the index fund strategy, because the average investor will panic in a down market and end up selling low. Hulbert prefers consistently following a suboptimal strategy, namely acting on the buy and sell advice of an investment newsletter, compared to inconsistently following the optimal strategy, which is to invest in an index fund and hold during downturns.

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