“I spent most of my time at Harvard trading”, says Ken Griffin, the founder and CEO of Citadel. During his freshman year at Harvard in 1986, Griffin traded stock options in his dorm room. The next year, Griffin launched a convertible bond arbitrage fund and made a huge amount of money during the 1987 stock market crash. He had $1 million in investors’ money for the same strategy in his senior year. Now, his Citadel Investment Group, which started in his Harvard dorm room, is one of the world’s largest hedge funds and manages over $40 billion assets. The company conducts both fundamental research and quantitative analysis to make investments and has earned a reputation for outstanding execution since its inception. Ken Griffin has made several billion dollars in his tenure at Citadel and has an estimated net worth of $2.3 billion as of 2011.
Citadel reduced its portfolio from $42.9 billion at the end of June to $41.2 billion at the end of September. The biggest position sold out by Citadel over the third quarter was Phillips Van Heusen (PVH). Citadel reported to own $92 million worth of PVH at the end of June. The stock gained 13% since the end of September. The other stocks sold by Citadel are Marathon Oil (MRO), Legg Mason (LM), IntercontinentalExchange (ICE), Iron Mountain (IRM), and Mylan (MYL).
Citadel increased its stakes in Apple (AAPL) by 125% to $2.17 billion over the third quarter. The fund also increased its position in Google (GOOG) by 27% to $539 million. AAPL returned 0.90% and GOOG returned 18.72% since the end of September. Both stocks are quite popular among hedge funds. Stephen Mandel, D. E. Shaw and Jim Simons all invested in these two stocks.
Over the third quarter, Citadel opened brand new positions in salesforce.com (CRM), DuPont (DD), Crown Holdings (CCK), and Lorillard (LO). DuPont is the best performing pick among these four new names, returning 17%. The other three new picks underperformed the market. It is better to focus on Citadel’s largest positions because Citadel has thousands of positions in its portfolio and only a few names will be absolutely new picks.
Citadel’s biggest positions in its portfolio are Apple (AAPL), Google (GOOG), E-Trade (ETFC), Amazon (AMZN), PNC Financial (PNC), Priceline (PCLN), Invesco (IVZ), Anadarko Petroleum (APC), Netflix (NFLX), and CoAmerica Inc (CMA). It is clear that Ken Griffin likes to invest in high-growth technology stocks. Netflix suffered a huge loss since the end of third quarter but Griffin made his bets by using call and put positions in the stock. The huge volatility in the stock meant a huge return for Griffin.
Citadel was also bullish about Intel Corp (INTC) and Chevron Corp (CVX). The company increased its position in INTC by 110% to $71.9 million and increased its CVX position by 114% to $62.2 million during the third quarter. INTC returned 18.16% and CVX gained 10% since the end of September, both beating the market. Bill Miller was also bullish about both stocks.
We like Ken Griffin and his Citadel Investment Group. The hedge fund sold a few poor performing positions and bought some stocks/options with good performance. We believe that investors will be able to beat the market in the long term by focusing on Citadel’s best stock picks.