Hulbert Rating: Impartial Evaluation of Investment Newsletters

An in-depth look at Hulbert Ratings, which provide a risk-adjusted assessment of the performance of investment newsletters.

A Hulbert Rating is a risk-adjusted rating assigned to an investment newsletter that provides an impartial evaluation of its performance. Developed by Mark Hulbert, this rating system assesses newsletters based on their ability to beat the market over time, adjusting for risk and other factors.

Key Elements of Hulbert Ratings

Risk-Adjusted Performance

Hulbert Ratings focus on risk-adjusted performance, which means that the evaluation takes into account both the returns generated by the newsletter and the level of risk involved in achieving those returns. This is crucial for providing a balanced view of a newsletter’s effectiveness.

Calculation Method

The rating considers several performance metrics:

• Annualized Return (\( r \)): The geometric average amount of money earned by an investment each year over a given time period.
• Alpha (\( \alpha \)): A measure of the active return on an investment compared to a market index.
• Beta (\( \beta \)): A measure of a security’s or portfolio’s volatility or risk compared to the market as a whole.

These metrics are often used in the Sharpe Ratio calculation:

$$ \text{Sharpe Ratio} = \frac{r - r_f}{\sigma} $$

where \( r \) is the portfolio return, \( r_f \) is the risk-free rate, and \( \sigma \) is the standard deviation of the excess return.

Performance-Based Classification

Newsletters are classified based on performance in relation to benchmarks like the S&P 500. They may be categorized into quartiles or other percentile ranks to reflect their relative standing.

Historical Context

The Hulbert Rating was introduced by Mark Hulbert through the “Hulbert Financial Digest,” which began publication in the early 1980s. The digest sought to provide an unbiased, third-party evaluation of the plethora of investment newsletters available at the time.

Special Considerations

• Longevity and Stability: Not all investment newsletters have long-term track records, making it important to distinguish between those that consistently perform well over time and those that are recently successful.
• Market Conditions: Performance-based ratings need to consider different market conditions, as certain strategies may perform well in bull markets but poorly in bear markets.
• Subjectivity and Bias: Despite efforts to remain impartial, subjective elements and biases may influence the Hulbert Ratings to some extent.

Applicability and Usage

For Investors

Investors use Hulbert Ratings to identify reliable investment newsletters. By providing a clear, objective measure of performance adjusted for risk, these ratings help investors make informed decisions.

For Newsletter Publishers

Competitively high ratings serve as a marketing tool, showcasing the effectiveness of their strategies, and potentially attracting more subscribers.

Related Terms

• Sharpe Ratio: A measure to evaluate the risk-adjusted return of an investment.
• Alpha: Indicator of an investment’s performance compared to a market index.
• Beta: Measure of the risk arising from exposure to general market movements.

FAQs

How frequently are Hulbert Ratings updated?

Hulbert Ratings are typically updated on a monthly or quarterly basis, depending on the data availability and the publication schedule of the “Hulbert Financial Digest.”

Can Hulbert Ratings predict future performance?

While Hulbert Ratings provide a historical evaluation, they are not necessarily predictive of future performance due to changing market conditions and other unpredictable factors.

Are all investment newsletters included in Hulbert Ratings?

No, inclusion in Hulbert Ratings generally depends on the availability of sufficient performance data and the willingness of the newsletter publisher to be evaluated.

References

1. Mark Hulbert and the Creation of Hulbert Ratings: [Biography Source]
2. Detailed Review on Risk-Adjusted Returns: [Financial Journal]
3. History and Evolution of Financial Newsletters: [Historical Finance Publication]

Summary

The Hulbert Rating is a robust, risk-adjusted measure that provides an impartial evaluation of investment newsletters’ performance. By helping investors distinguish between high-quality and low-quality newsletters, it plays a critical role in the investment decision-making process.