How We Returned 96.9% and Beat the Market by 40 Percentage Points

Our flagship best performing hedge funds strategy returned 17.4% in 2018 through November 2nd, vs. 3.2% gain for the S&P 500 index ETF (SPY) during the same period. Since its inception in May 2014 this strategy’s stock picks also returned 96.9% and beat the S&P 500 index by more than 40 percentage points.

We aren’t one of those slimy newsletter marketers who try to part mom-and-pop investors from their hard earned dollars by touting the incredible returns of SOME of our recommendations. The majority of active fund managers can’t beat the market after taking into account the fees they charge.  In fact, the majority of investment professionals, including your financial advisor who charges 1% annual fee, can’t beat the market. Passive index fund investors have already given up on the idea of beating the market.

If beating the market is so darn difficult, what makes us think that we can do it?

Our research director has a Ph.D. in financial economics and he has been doing quantitative stock research for more than a decade. This doesn’t mean that he can beat the market but it means that he can at least do high quality research and understand the research done by other academics.

He has been analyzing the quarterly 13F filings made by almost all of the active and dead hedge funds covering the 18-year period between 1999 and 2017. His research revealed that ordinary investors could have outperformed the S&P 500 index by imitating the consensus stock picks of the top 100 best performing hedge funds.

Our thesis is very simple. Hedge funds are strongly incentivized to outperform the market. Some hedge fund managers make billions of dollars in a single year if they generate decent returns. 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 small-cap stocks because these stocks aren’t well-covered and well-researched by a lot of investors. So, we formed our thesis:

When several good hedge fund managers buy the same small-cap stocks independent of each other, those small-cap 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 small-cap stocks, they sure can’t beat the market by picking large cap stocks that are followed by everyone.

We weren’t surprised that best hedge funds’ most popular small-cap stock picks outperformed the market.

However, this is only the first step. The real test is measuring the performance of this strategy in real life. There are a lot of strategies that worked in the past that don’t work anymore.

We launched our best performing hedge funds strategy in May 2014 and started sharing its stock picks in our quarterly newsletter. Since its inception (through August 29 2018) this strategy’s stock picks returned 96.9% and beat the S&P 500 index by more than 40 percentage points.

There aren’t any gimmicks. We usually pick 5 to 15 stocks every quarter and invest equal amounts on each position. In order for you to evaluate whether this strategy is the right one for you, we will share ALL of OUR stock picks for the previous four quarters.

Quarter 1 (Published on August 15, 2017): Our Best Performing Hedge Funds Strategy outperformed the market by 3.0 percentage points in 3 months.

Best Performing Hedge Funds Strategy Return: 7.5%

S&P 500 ETF (SPY) Return: 4.5%

1. Yandex (YNDX): 3.3%
2. IAC/InterActiveCorp (IAC): 18.8%
3. Liberty Media Corporation (FWONK): 5.5%
4. New Oriental Education & Technology Group (EDU): 5.4%
5. Momo Inc. (MOMO): -30.8%
6. Take-Two Interactive Software, Inc. (TTWO): 29.5%
7. Berry Global Group, Inc. (BERY): 0.4%
8. Marvell Technology Group Ltd. (MRVL): 27.7%

Quarter 2 (Published on November 15, 2017): Our Best Performing Hedge Funds Strategy outperformed the market by 2.5 percentage points in 3 months.

Best Performing Hedge Funds Strategy Return: 9.5%

S&P 500 ETF (SPY) Return: 7.0%

1. Adient plc (ADNT): -14.3%
2. Yandex N.V. (YNDX): 34.3%
3. Sina Corporation (SINA): 14.0%
4. New Oriental Education & Technology Group (EDU): 9.1%
5. Alcoa Corporation (AA): 12.7%
6. Take-Two Interactive Software, Inc. (TTWO): -7.8%
7. IAC/InterActiveCorp (IAC): 18.8%

Issue 3 (Published on February 15, 2018): Our Best Performing Hedge Funds Strategy outperformed the market by 5.8 percentage points in 3 months.

Best Performing Hedge Funds Strategy Return: 6.9%

S&P 500 ETF (SPY) Return: 1.1%

1. Peabody Energy Corporation (BTU): -0.3%
2. RSP Permian, Inc. (RSPP): 33.0%
3. C&J Energy Services, Inc (CJ): 15.5%
4. Alcoa Corporation (AA): 5.5%
5. US Foods Holding Corp. (USFD): 7.3%
6. Builders FirstSource, Inc. (BLDR): -4.6%
7. Hyatt Hotels Corporation (H): 2.1%
8. Energen Corporation (EGN): 27.2%
9. Cott Corporation (COT): 3.4%
10. LPL Financial Holdings Inc. (LPLA): 8.2%
11. Newmark Group, Inc. (NMRK): -3.4%
12. Olin Corporation (OLN): 0.5%
13. Constellium N.V. (CSTM): -4.7%

Quarter 4 (Published on May 16, 2018): Our Best Performing Hedge Funds Strategy outperformed the market by 7.8 percentage points in 2.5 months (through July 23, 2018).

Best Performing Hedge Funds Strategy Return: 11.2%

S&P 500 ETF (SPY) Return: 3.8%

1. Zendesk, Inc. (ZEN): 10.9%
2. Ringcentral, Inc. (RNG): 7.9%
3. Ascendis Pharma A/S (ASND): 1.7%
4. FibroGen, Inc (FGEN): 26.2%
5. Mimecast Limited (MIME): -0.3%
6. Talend S.A. (TLND): 11.2%
7. Tableau Software, Inc. (DATA): 20.4%

If, after spending a little time absorbing our past record and our current recommendations, you aren’t convinced Insider Monkey’s Best Performing Hedge Funds Strategy will change forever how you invest your money, you can tell us within the first 14 days and we’ll refund your money, no questions asked.

As a Premium newsletter member you’ll also be entitled to our Billionaire Hedge Fund Dividend Strategy, which has outperformed its benchmark by 13.4 percentage points since its inception two years ago.

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 10-year Treasury bonds ETF (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.

As a Premium newsletter member you’ll also be entitled to our list of most popular battleground stocks. Ordinary investors can benefit from this list by avoiding these stocks. Professional investors can benefit by shorting them. These stocks underperformed the S&P 500 Index by more than 83 percentage points since the beginning of September 2012.

More than 75 pages in length, the premium newsletter also covers our small-cap hedge fund strategy’s stock picks, in-depth analysis of 23 billionaire hedge fund managers and their best stock picks, most concentrated positions among hedge funds, stocks dumped by hedge funds, and high conviction picks of value hedge funds.

If you’d like hear what hedge fund managers think about the market and individual stocks, but don’t have $5,000- $10,000 to spend on a hedge fund investment conference, the best alternative is reading hedge fund investor letters. Our quarterly newsletter devotes nearly a quarter of its pages to excerpts from hedge fund investor letters where fund managers 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.

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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 14^th, May 15^th, August 14^th, and November 14^th of each year.

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

We also publish a monthly activist newsletter, which costs $149 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 investment strategies.

More than 75 pages in length, the premium newsletter also covers our small-cap hedge fund strategy’s stock picks, in-depth analysis of 23 billionaire hedge fund managers and their best stock picks, most concentrated positions among hedge funds, stocks dumped by hedge funds, high conviction picks of value hedge funds, and 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.

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

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