The Hulbert Financial Digest is an independent rating service that provides investors with the facts about stock and mutual fund investment letter performance. Started by Mark Hulbert in 1979, the newsletter tracks of 180 services identify the best performers.
This month, Hulbert highlights the Investors Intelligence portfolios, which scored the coveted #1 position for 5-year risk adjusted performance. Over the past 5 years (to March 31, 2006), the II portfolios have returned 10.8% per annum compared to 5.9% for the Wilshire 5000 index. What is more, II’s conservative approach has produced portfolios which exhibit lower than average volatility and “draw-down”, based on the industry standard Sharpe Ratio. This means more gains with less risk for our subscribers!
Here’s what Mark Hulbert, editor of the Hulbert Financial Digest had to say about senior analyst Mike Burke and the Investors Intelligence approach in a previous review, published in September 2004.
"Investors Intelligence is one of the older investment newsletters being published today, having been started in the late 1950s. Its current editor, Michael Burke,began working for the newsletter in 1963, and assumed editorship in 1982 from its founder, Abraham Cohen. The newsletter perhaps is best known for its "Bearish Sentiment Index," * which measures the degree of bearishness among fellow investment newsletter editors. This indicator is widely reported in the financial press and by other newsletters.
Burke has inaugurated a number of different model portfolios over the years, some of mutual funds and others of stocks or options. The oldest of these portfolios, called the Fidelity Switch Fund (Equity), focuses on Fidelity’s Select funds. Other portfolios include one constructed from Fidelity’s bond funds, another from Fidelity’s international funds, yet another of Fidelity’s gold funds, three portfolios of individual stocks ("Low-Priced & Trading,""Long-Term," and "Income & Appreciation"), a portfolio of short sales ("Bear Corner"), and another of stock options.
Investors Intelligence has recommended more portfolios besides these that have since been discontinued, including three that invested in Rydex funds and a fourth "Traders" portfolio. Though these portfolios no longer exist, their performances are included in what we report for the newsletter’s overall average.
Perhaps the best read on Burke’s abilities comes from focusing on his Fidelity Switch Fund (Equity) portfolio, the longest-lived of the ones he currently maintains. For market timing in this portfolio, Burke interprets his Bearish Sentiment Index in a contrarian way, turning more bullish as it reaches bearish extremes, and vice versa. For selecting funds, he picks those with the greatest relative strength. This approach renders the portfolio fairly active, with an average holding period of about two months.
According to the HFD’s calculations, this portfolio outperformed the stock market by an average of 0.8 percentage points per year between 12/31/86 and 8/31/04. The HFD’s research suggests that a big portion of the credit for this market-beating performance goes to Burke’s market timing. Consider the performance of a hypothetical timing-only portfolio that invested in "shares" of the Wilshire 5000 in exactly the same proportions. Though this timing-only portfolio lagged the Wilshire by 1.1 percentage points per year on an annualized basis, it did so with so much less risk that it significantly outperformed the market on a risk-adjusted basis.
Burke’s Fidelity Switch Fund (Equity) model portfolio did better still than this hypothetical timing-only portfolio. This suggests that Burke’s recommended Fidelity sector funds have outperformed the Wilshire during the times that this portfolio owned them. The timing advice that Burke provides for this portfolio can be readily followed in another fund family. Burke limits the portfolio to no more than five funds, with 20% assigned to each. Thus, it is easy to follow Burke’s timing advice with a fund of your own choosing."