Insider Monkey’s small-cap hedge fund strategy returned 18.7% year-to-date, vs. 12.9% gain for S&P 500 ETF (SPY) and 1.8% gain for Russell 2000 ETF (IWM). Even though small cap stocks, in general, significantly underperformed their large cap peers this year, our stock picks outperformed Bogle’s favorite index strategy by nearly 6 percentage points. More impressively Russell 2000 investors could have boosted their returns by nearly 17 percentage points if they have followed our strategy instead of sheepishly following Russell’s dumb indexing strategy.
We weren’t able to kill the Russell 2000 ETF (IWM) because of its poor returns this year either. Last year Russell 2000 ETF (IWM) gained 38.7% including dividends. Our small-cap strategy returned 53.2% and beat IWM by 14.5 percentage points. We launched our quarterly newsletter at the end of August 2012. Our small-cap strategy’s stock picks also returned 14.6% in the last 4 months of 2012, vs. 2.1% gain for SPY and 5.3% gain for IWM.
Overall, our small-cap strategy’s picks returned 108.4% since the inception of our newsletter at the end of August 2012. S&P 500 ETF (SPY) was the best performing index in this period with a total return of 52.5%. Russell 2000 ETF (IWM) returned only 48.6%. Our strategy is a pure stock picking strategy and we don’t employ any leverage. Our average beta was around 1.2 during the past 27 months, however, high beta stocks actually underperformed the market. This means that our cumulative alpha is more than 50 percentage points in 27 months.
How did we do it? Our proprietary strategy identifies 15 stocks every quarter. These are in essence the best stock picks of the best hedge fund managers. You probably know that hedge funds don’t outperform the market. Our picks were able to kill the market because we don’t have to pay 2 and 20 to already rich hedge fund guys. We also don’t invest in the 35th idea of a hedge fund manager. Each hedge fund manager only have 1-2 good ideas every year. The rest of their portfolios are usually mediocre ideas that fail to outperform the market meaningfully. We avoid these ideas and invest only in the best ideas of the best hedge fund managers. Try our newsletter.
This weekend we published our new stock picks. This is the best time to subscribe to our quarterly newsletter. You will get our new picks FREE. Your subscriptions covers 4 new issues of our quarterly newsletter.