Ken Griffin of Citadel Investment Group holds one of the most diverified equity portfolios among billionaire investors that we track. Citadel’s most recent 13F, disclosed an equity portfolio valued at $82.66 billion, where the largest long position amasses only 0.70% of the value, while all top 10 picks represent less than 8% of the total portfolio. The portfolio is also diversified across sectors and comprises companies from Technology, Consumer Discretionary, Finance, Energy, Healthcare, Industrials, and others. Such a diversification lies within Mr. Griffin’s strategy, which involves complex financial algorithms and a lot of computer codes. This innovative technical approach worked out well for Mr. Griffin, with Citadel reporting solid performance in most years since its inception and despite a significant slump during the financial crisis, the investor managed to recover from the losses.
A large diversification allows Mr. Griffin to invest in a vast range of companies from small to large in terms of market capitalization. This strategy can be very effective, especially if we take into account the returns of Citadel’s two funds, Kensington and Wellington, which gained 25% and 19.4% in 2012 and 2013 respectively. Moreover, such a strategy is also supported by our research of most popular stock picks among investors. The majority of companies in which big money managers prefer to invest their money are represented by large-cap stocks, however, 50 most popular stocks underperformed the market by 7 basis points per month between 1999 and 2012. Therefore, equity hedge funds had small returns of 4.8%, 11.1% and 1.4% between 2012 and 2014, which are very insignificant relative to the S&P 500 ETF’s gains of 16%, 32.3% and 13.5% during the same years. On the other hand, small cap picks performed much better and our strategy that identifies the best small-cap picks advanced by 33.3% in 2012, 53.2% in 2013 and 28.2% in 2014.
However, let’s get back to Citadel Investment Group. One of the sectors in which Mr. Griffin slightly upped his exposure during the fourth quarter is energy. It’s easy to understand why. Amid low oil prices and issues with supply and demand, the stocks of oil companies took a hit in the second half of 2014. However, oil is a cyclical commodity, which means that the prices are most likely to rebound. Moreover, most large oil companies implemented strategies to hedge from the decline of oil prices and have been able to generate profit growth amid falling revenues. Three oil companies that represented Mr. Griffin’s largest equity plays at the end of 2014 are Devon Energy Corp (NYSE:DVN), Anadarko Petroleum Corporation (NYSE:APC), and Exxon Mobil Corporation (NYSE:XOM) and the investor upped his positions in all three stocks during the last three months of 2014.