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Hedge Fund Alpha – Quarterly Newsletter

Insider Monkey’s premise is simple. We believe we can outperform the S&P 500 Index ETFs by imitating the best stock picks of the best hedge funds.

Hedge funds are strongly incentivized to outperform the market. Some hedge fund managers make billions of dollars in a single year if they generate alpha. They hire the smartest students graduating from the best universities in the world. They hire those students’ professors. They hire the top experts and consultants in the field to gain just a tiny edge over other investors – including you. And sometimes they cheat and get their hands on illegal inside information. However, we think that hedge funds are more likely to get an edge over ordinary investors in smaller stocks because these stocks aren’t well-covered and well-researched by a lot of investors. So, we formed our thesis:

When several hedge fund managers buy the same stocks independent of each other, those stocks should outperform the market on average.

This is a very simple and intuitive thesis. Think about it. If hedge funds can’t beat the market by picking under-researched smaller stocks, they sure can’t beat the market by picking large cap stocks that are followed by everyone.

So, how do we come up with the list of best hedge fund stocks to buy?

Our research director has a Ph.D. in financial economics and he has been doing quantitative stock research for 17 years. He has been focusing on the hedge fund space for the past 5 years. We highlight 3 of his hedge fund investment strategies in our quarterly hedge fund investment newsletter.

The first strategy is called the small-cap hedge fund strategy. It invests in the 15 most popular small-cap stocks among ALL hedge funds in our database. Our research director analyzed the quarterly 13F filings made by almost all of the active and dead hedge funds covering the 13-year period between 1999 and 2012. His research revealed that ordinary investors could have outperformed the S&P 500 index by nearly 12 percentage points per year during this 13 year period by imitating the 15 most popular small-cap stock picks among hedge funds. The stock market returned 0.32% per month during this 13 year period, yet our strategy returned an average of 1.27% per month. You can check out the details of the back test results here.

We started sharing our small-cap hedge fund strategy’s stock picks at the end of August 2012. Our flagship small-cap hedge fund strategy returned 102% in its first 3 years, vs. 48.7% gain for the S&P 500 index ETF (SPY) during the same period. Unfortunately, our strategy lost 33.4% (vs. SPY’s 1.3% loss) between the end of August 2015 and the middle of February 2016. Our returns recovered since then: our strategy returned 30.2% vs. SPY’s 23.8% gain (through February 14, 2017).

On February 15th 2017 we launched the enhanced version of the small-cap hedge fund strategy. This strategy would have outperformed SPY by 21.5 percentage points over the last 4 quarters and by more than 30 percentage points since the inception of our small-cap hedge fund strategy.

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The second strategy we highlight in our quarterly newsletter is another improved, less volatile version of the original small-cap strategy. We have been sharing the stock picks of this small and mid-cap strategy in our quarterly newsletter since May 2014 and it managed to outperform the S&P 500 Index ETF (SPY) by 18.4 percentage points.

Our mid-cap strategy identifies the 30 most popular mid-cap stocks among the 100 best performing hedge funds of the previous quarter. Most of the time these hedge funds know what they are doing. They make concentrated bets in a small number of stocks and markets prove them right. Our goal for this strategy is to match the performance of the S&P 500 Index during bad times, and beat the S&P 500 Index handily during good times. So far this strategy lived up to our expectations.

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The third strategy is our billionaire hedge fund dividend strategy. Most investors are directly or indirectly invested in long-term bonds. We believe this is an extremely bad idea because long-term bonds will deliver negative real returns over the next 10 years as inflation and interest rates start to go up. The goal of our strategy is to outperform the IEF by identifying 15 dividend stocks with upside potential.  In this portfolio three small-cap dividend stocks favored by all hedge funds balanced by 12 large-cap dividend stocks that are favored by billionaires.

Since its inception in November 2015 our dividend strategy returned 8.8% and outperformed the IEF by 7.8 percentage points.

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We should note that  the expected outperformance of our strategies go down as the market value of the stocks we invest in go up.

If you are the type of investor who likes to do his/her research but need a source for idea generation, our newsletter is ideal for you. We identified the best performing sections of each of more than 20 billionaire hedge fund managers (i.e. Seth Klarman’s micro-cap picks performed fantastically in our back tests) and share these picks with you.

Our newsletter also shares various screens based on our aggregate hedge fund holdings data (i.e. most concentrated hedge fund holdings) as well as excerpts from hedge fund investor letters where they discuss their market outlook or investment thesis in individual stocks.

For a limited time we have a 14-day no questions asked money back guarantee option.

SEE OUR LATEST STOCK PICKS

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Frequently Asked Questions

1. How many issues do you produce in a year, and when are they typically released?

Our primary premium newsletter is produced quarterly and is published around February 14th, May 15th, August 14th, and November 14th of each year.

2. Do you offer any other services besides the quarterly newsletter?

We also publish a monthly activist newsletter, which costs $99 per month or $449 per year with an annual subscription. In each monthly newsletter, a top-tier hedge fund manager is interviewed and/or analyzed, and 1-2 novel investment ideas are shared.

3. What would I get if I were to subscribe?

Premium newsletter members will receive access to our three investment strategies. More than 70 pages in length, the premium newsletter also covers billionaire investors’ best stock picks, and offers an excerpts from hedge fund investor letters.

4. Does your newsletter give alerts on when to buy and sell and the position percentages of one’s portfolio?

Each quarter we show our subscribers what to sell, what to buy, and what to maintain in their portfolios, within the confines of our strategies.

5. Is there a trial period for your services?

All premium members receive a partial refund if cancelled within 14 days of purchase. Currently we are running a promotion. For a limited time we have a 14-day no questions asked money back guarantee option.

6. Can I cancel after 14 days?

After the 14-day trial period, membership is final for four quarterly issues, i.e., one full year.

7. So how many issues do I actually receive? Does a membership include past quarterly reports too?

Yes. If you are subscribed to our quarterly newsletter you will receive access to all archived issues and 4 new issues over the next 12 months. If you are subscribed to our monthly newsletter you won’t have access to our archived issues.

8. What sized companies do you focus on?

The list of stocks we focus on in our small and mid-cap strategies has market values between $1 billion and $10 billion. There is no market cap limit in our billionaire hedge fund dividend strategy.

9. Do you guarantee that I can beat the market by following your strategy?

No. Our strategy outperformed the market in the past and in our backtests. However, this doesn’t guarantee that it will outperform the market in the future and on a consistent basis. Professional investors know that there aren’t any stock picking strategies that can beat the market consistently. Bernie Madoff was offering a strategy that was able to deliver consistently profitable results but we all know how that ended. If you decide to imitate our strategy you should be aware of occasional losses and underperformance as we experienced between the end of August 2015 and the middle of February 2016.

10. How can I pay for Insider Monkey’s premium services?

Premium subscribers may pay via Paypal, check or credit card.