I’ve been a Hedgeye user for ten years and have always been enthusiastic about their values, people, and process. The cold hard fact is that I have not been able to parlay Hedgeye investment recommendations into investment success. There’s a glaring discrepancy between the presentation and the product.
One presentation that you wrote about last week: “The first rule of the Hedgeye investing process is preserve and protect your capital. The innovative risk management system created by Founder and CEO Keith McCullough is designed to prevent major drawdowns. Why wear a 75 percent plunge in a stock such as Meta between August 2021 and October 2022 if you can limit your loss to five or six per cent?”
Here’s some data for several of their products: 1) for 157 closed trades since Signal Strength began in February this year, 23% had losses from 10% to 33%; 2) for 142 closed trades since Top Stock Picks began in March, 22% had losses from 10% to 36%; 3) for 139 closed long trades in Investing Ideas from 2020 through May of this year, 23% had losses from 10% to 40% (plus a 95% loss on a stock Keith kept for perhaps instructive reasons); 4) even in ETF pro, where beta is significantly less, 7.5% of 226 closed long equity trades since July, 2018 had losses of 10% to 31%.
In markets, stuff happens; Hedgeye’s risk management system is not a magic bullet that limits losses to five or six percent.
Another example of the presentation/product discrepancy: Keith is fond of asking, “Who gets you out?” after exiting a position that subsequently goes south. Here’s some data regarding ETF Pro, July, 2018 through September, 2024: of 300+ closed long trades, post-sale, 53% were actually higher 1 month later, 52% were higher 3 months later, and 51% were higher 6 months later. Whatever sophisticated process led to the sell decisions, you were as likely to avoid gains as you were to avoid losses.
For all that Hedgeye talks about being data-driven and measuring and mapping everything – and their data presentation is indeed impressive – I am confident in saying that they don’t measure and map the investment results of their own products (the one exception being the win rate for trades in Macro Pro; but that data point doesn’t go far enough). In trying to understand my sub-par investment results, largely informed by ETF Pro and Investing Ideas, I did some grinding of my own.
For ETF Pro, the presentation: "This monthly macro strategy update is designed to select 10 to 20 essential ETF exposures within each of the seven major asset classes to keep you and your clients ahead of the next big market move." The data from July, 2018 through early September, 2024, long-only trades:
• Equities: 225 closed trades, 30% had positive returns, -0.86% average return
• Average hold time for all trades was 9.6 weeks; 46% of trades were 4 weeks or less.
If the equity trades had been invested in SPY, 58% would have been positive with a 2.18% average return (ETF Pro equity trades underperformed SPY by 300 basis points). For the closed equity trades, 56% would have been higher 1 month later, 51% would have been higher 3 months later, and 53% would have been higher 6 months later. In each of those cases, SPY would have been higher 1 month later 65% of the time, higher 3 months later 79% of the time, and higher 6 months later 80% of the time.
For Investing Ideas, the presentation: “. . . tailor-made for the thoughtful investor with a longer-term investment horizon seeking high-conviction opportunities they can keep in their portfolio for many months - in some instances, years to come. In a nutshell, Hedgeye CEO Keith McCullough handpicks the ‘best of the best’ long and short ideas delivered to him by our team of over 40 research analysts across multiple sectors.” The data from January 2020 through May, 2024:
• Of 148 closed long-only trades, only 36% had a positive return and only 32% did better than SPY for the same holding period. If SPY had been traded rather than the recommended stock, 77% of those SPY trades would have seen a positive return.
• Of 148 closed long-only trades, the average return was 8.87% vs. SPY at 5%. Trimmed for Gamestop (+906%) and Playboy (-94%), the average return of 146 trades was 3.43% underperforming SPY by 1.57%.
• Only 25% of the closed long-only trades were held longer than 92 days; only two trades were held longer than a year.
For Signal Strength Stocks, the presentation: “Each week, Signal Strength Stocks provides you a best-of-the-best list of stock picks. Here’s how it works. Our team covers hundreds of stocks (across Retail, Restaurants, Financials and everything in between). CEO Keith McCullough uses his proven buy low, sell high market signals to select the highest-flyers so you can make better investment decisions.” The data based on stock purchases from mid-February of this year, when the product launched, through October 18:
• As of October 18, 62 open stock positions showed an average return of 12.29%, bettering SPY at 6.01%.
• As of October 18, 157 closed stock positions averaged -3.22%, vs. SPY at 2.49% (only 17% of the positions did better than SPY and only 29% had positive returns; 68% of SPY returns were positive).
• The October 18 snapshot of all open and closed positions showed an average return of 1.17%, vs. SPY at 3.49%.
• Average hold time of closed positions was 45 days; 48% were held for 4 weeks or less.
For Top Stock Picks, the presentation: “BEST OF THE BEST, LONG TERM STOCK IDEAS - Top Stock Picks provides our most elite 20 stock ideas. . . This performance-driven list of long ideas is refreshed in real-time to turbocharge your portfolio . . . – spotting winners and cutting losers – so you can adjust your portfolio for long-term investing success.” The data based on stock purchases from product launch (March 28, 2024) through October 18:
• Of 142 closed trades, only 35% had a positive return and only 32% did better than SPY for the same holding period. If SPY had been traded rather than the recommended stock, 55% of those SPY trades would have seen a positive return.
• As of October 21, 22 open stock positions showed an average return of 9%, bettering SPY at 4.5%.
• As of October 21, 142 closed stock positions averaged -2.2%, vs. SPY at 1.12%
• The October 21 snapshot of all open and closed positions showed an average return of -0.69%, vs. SPY at 1.57%.
• Average hold time of closed positions was 25 days; 56% were held for 2 weeks or less.
Hedgeye prides itself on transparency and accountability, on developing a new approach to investing that leaves the Old Wall and SPY Monkeys in the dust. As the data show, the four Hedgeye products I examined look like sick puppies next to those SPY Monkeys, consistently underperforming by 160-300 basis points. I shared some of this information with Hedgeye and asked the pointed question, “If these were hockey players, would Keith put them in the game?”
For ten years, I’ve been an eager student of the Hedgeye process and still pay close attention to their macro outlook and insights in spite of being disillusioned with the investment products I’ve used and looked at. I like the team, and listening to the Macro Show is part of my daily routine. But I no longer share your enthusiasm for Hedgeye when it comes to the fundamental question of what to own and when. The real test for the integrity of Hedgeye is how they respond to the information I’ve presented – they need to measure and map their products and set reasonable benchmarks to determine success or failure. The key question is whether they can provide investors like you and me with products that live up to the promise and claims of a superior investment approach – so far, sadly, I must say they have failed.
Thank you for your email and apologies for the late response. Your message was quite overwhelming. That is one giant paragraph. :)
What did Hedgeye say when you asked them about their returns?
I can’t refute your numbers. Are those your returns or Keith’s/Hedgeye’s returns?
I’m not sure what to say to the fact that you have not been able to parlay Hedgeye’s recommendations into success.
I struggled early on because, as I wrote in one of the posts, I was trying to replicate Keith’s moves but realized I wasn’t experienced enough to do that and I wasn’t comfortable trading so much.
I’ve now settled on a concentrated portfolio of stocks based on companies that are on the Signal Strength and Investing Ideas lists. I try to buy them when they’re on sale at the low end of the RR and maybe even ticking higher instead of catching a falling knife, which was happening too often. And I’m disciplined in dumping stocks that aren’t working. I sell if a stock has 4-6% loss and redeploy the money into something that’s working.
That use of the process is working for me so far.
I have to disagree with your conclusion that Hedgeye is just selling subscriptions. Yes, they sell hard and the way they deliver the content is imperfect but I think there is a lot of value in their various products.
Thanks for this detailed dive. There was a recent study published by Corey Hoffstein of Newfound Research who determined that KM’s cagr in his PA’s since 2022 was around 3.6%, using actual starting and ending data shared by Keith. For all the pomp and circumstance, hedgeye sounds like a sales pitch meant to sell subscriptions and nothing more
I’ve been a Hedgeye user for ten years and have always been enthusiastic about their values, people, and process. The cold hard fact is that I have not been able to parlay Hedgeye investment recommendations into investment success. There’s a glaring discrepancy between the presentation and the product.
One presentation that you wrote about last week: “The first rule of the Hedgeye investing process is preserve and protect your capital. The innovative risk management system created by Founder and CEO Keith McCullough is designed to prevent major drawdowns. Why wear a 75 percent plunge in a stock such as Meta between August 2021 and October 2022 if you can limit your loss to five or six per cent?”
Here’s some data for several of their products: 1) for 157 closed trades since Signal Strength began in February this year, 23% had losses from 10% to 33%; 2) for 142 closed trades since Top Stock Picks began in March, 22% had losses from 10% to 36%; 3) for 139 closed long trades in Investing Ideas from 2020 through May of this year, 23% had losses from 10% to 40% (plus a 95% loss on a stock Keith kept for perhaps instructive reasons); 4) even in ETF pro, where beta is significantly less, 7.5% of 226 closed long equity trades since July, 2018 had losses of 10% to 31%.
In markets, stuff happens; Hedgeye’s risk management system is not a magic bullet that limits losses to five or six percent.
Another example of the presentation/product discrepancy: Keith is fond of asking, “Who gets you out?” after exiting a position that subsequently goes south. Here’s some data regarding ETF Pro, July, 2018 through September, 2024: of 300+ closed long trades, post-sale, 53% were actually higher 1 month later, 52% were higher 3 months later, and 51% were higher 6 months later. Whatever sophisticated process led to the sell decisions, you were as likely to avoid gains as you were to avoid losses.
For all that Hedgeye talks about being data-driven and measuring and mapping everything – and their data presentation is indeed impressive – I am confident in saying that they don’t measure and map the investment results of their own products (the one exception being the win rate for trades in Macro Pro; but that data point doesn’t go far enough). In trying to understand my sub-par investment results, largely informed by ETF Pro and Investing Ideas, I did some grinding of my own.
For ETF Pro, the presentation: "This monthly macro strategy update is designed to select 10 to 20 essential ETF exposures within each of the seven major asset classes to keep you and your clients ahead of the next big market move." The data from July, 2018 through early September, 2024, long-only trades:
• Equities: 225 closed trades, 30% had positive returns, -0.86% average return
• Commodities: 56 closed trades, 32% positive returns, -0.48% average return
• Bonds: 53 closed trades, 30% positive returns, 0.50% average return (-1.74% since 2020)
• Currencies: 25 closed trades, 38% positive returns, 0.86% average return (-0.33% ex-gold)
• Alts (CTA, BTAL, KMLM): 9 closed trades, 0% positive returns, -4.73% average return
• Average hold time for all trades was 9.6 weeks; 46% of trades were 4 weeks or less.
If the equity trades had been invested in SPY, 58% would have been positive with a 2.18% average return (ETF Pro equity trades underperformed SPY by 300 basis points). For the closed equity trades, 56% would have been higher 1 month later, 51% would have been higher 3 months later, and 53% would have been higher 6 months later. In each of those cases, SPY would have been higher 1 month later 65% of the time, higher 3 months later 79% of the time, and higher 6 months later 80% of the time.
For Investing Ideas, the presentation: “. . . tailor-made for the thoughtful investor with a longer-term investment horizon seeking high-conviction opportunities they can keep in their portfolio for many months - in some instances, years to come. In a nutshell, Hedgeye CEO Keith McCullough handpicks the ‘best of the best’ long and short ideas delivered to him by our team of over 40 research analysts across multiple sectors.” The data from January 2020 through May, 2024:
• Of 148 closed long-only trades, only 36% had a positive return and only 32% did better than SPY for the same holding period. If SPY had been traded rather than the recommended stock, 77% of those SPY trades would have seen a positive return.
• Of 148 closed long-only trades, the average return was 8.87% vs. SPY at 5%. Trimmed for Gamestop (+906%) and Playboy (-94%), the average return of 146 trades was 3.43% underperforming SPY by 1.57%.
• Only 25% of the closed long-only trades were held longer than 92 days; only two trades were held longer than a year.
For Signal Strength Stocks, the presentation: “Each week, Signal Strength Stocks provides you a best-of-the-best list of stock picks. Here’s how it works. Our team covers hundreds of stocks (across Retail, Restaurants, Financials and everything in between). CEO Keith McCullough uses his proven buy low, sell high market signals to select the highest-flyers so you can make better investment decisions.” The data based on stock purchases from mid-February of this year, when the product launched, through October 18:
• As of October 18, 62 open stock positions showed an average return of 12.29%, bettering SPY at 6.01%.
• As of October 18, 157 closed stock positions averaged -3.22%, vs. SPY at 2.49% (only 17% of the positions did better than SPY and only 29% had positive returns; 68% of SPY returns were positive).
• The October 18 snapshot of all open and closed positions showed an average return of 1.17%, vs. SPY at 3.49%.
• Average hold time of closed positions was 45 days; 48% were held for 4 weeks or less.
For Top Stock Picks, the presentation: “BEST OF THE BEST, LONG TERM STOCK IDEAS - Top Stock Picks provides our most elite 20 stock ideas. . . This performance-driven list of long ideas is refreshed in real-time to turbocharge your portfolio . . . – spotting winners and cutting losers – so you can adjust your portfolio for long-term investing success.” The data based on stock purchases from product launch (March 28, 2024) through October 18:
• Of 142 closed trades, only 35% had a positive return and only 32% did better than SPY for the same holding period. If SPY had been traded rather than the recommended stock, 55% of those SPY trades would have seen a positive return.
• As of October 21, 22 open stock positions showed an average return of 9%, bettering SPY at 4.5%.
• As of October 21, 142 closed stock positions averaged -2.2%, vs. SPY at 1.12%
• The October 21 snapshot of all open and closed positions showed an average return of -0.69%, vs. SPY at 1.57%.
• Average hold time of closed positions was 25 days; 56% were held for 2 weeks or less.
Hedgeye prides itself on transparency and accountability, on developing a new approach to investing that leaves the Old Wall and SPY Monkeys in the dust. As the data show, the four Hedgeye products I examined look like sick puppies next to those SPY Monkeys, consistently underperforming by 160-300 basis points. I shared some of this information with Hedgeye and asked the pointed question, “If these were hockey players, would Keith put them in the game?”
For ten years, I’ve been an eager student of the Hedgeye process and still pay close attention to their macro outlook and insights in spite of being disillusioned with the investment products I’ve used and looked at. I like the team, and listening to the Macro Show is part of my daily routine. But I no longer share your enthusiasm for Hedgeye when it comes to the fundamental question of what to own and when. The real test for the integrity of Hedgeye is how they respond to the information I’ve presented – they need to measure and map their products and set reasonable benchmarks to determine success or failure. The key question is whether they can provide investors like you and me with products that live up to the promise and claims of a superior investment approach – so far, sadly, I must say they have failed.
Hi Dennis.
Thank you for your email and apologies for the late response. Your message was quite overwhelming. That is one giant paragraph. :)
What did Hedgeye say when you asked them about their returns?
I can’t refute your numbers. Are those your returns or Keith’s/Hedgeye’s returns?
I’m not sure what to say to the fact that you have not been able to parlay Hedgeye’s recommendations into success.
I struggled early on because, as I wrote in one of the posts, I was trying to replicate Keith’s moves but realized I wasn’t experienced enough to do that and I wasn’t comfortable trading so much.
I’ve now settled on a concentrated portfolio of stocks based on companies that are on the Signal Strength and Investing Ideas lists. I try to buy them when they’re on sale at the low end of the RR and maybe even ticking higher instead of catching a falling knife, which was happening too often. And I’m disciplined in dumping stocks that aren’t working. I sell if a stock has 4-6% loss and redeploy the money into something that’s working.
That use of the process is working for me so far.
I have to disagree with your conclusion that Hedgeye is just selling subscriptions. Yes, they sell hard and the way they deliver the content is imperfect but I think there is a lot of value in their various products.
Thanks again for taking the time to write.
Regards,
Mark
…but I don’t disagree that some kind of running account of returns would be helpful.
Thanks for this detailed dive. There was a recent study published by Corey Hoffstein of Newfound Research who determined that KM’s cagr in his PA’s since 2022 was around 3.6%, using actual starting and ending data shared by Keith. For all the pomp and circumstance, hedgeye sounds like a sales pitch meant to sell subscriptions and nothing more