How Are Citadel Advisors Hedging their Portfolio?

Kenneth Cordele Griffin is the CEO of investment management firm Citadel Advisors LLC. He is the hedge fund manager and is very well-known in the asset management industry. He founded Citadel in 1990. 

In the second quarter of 2019, the top holdings of Citadel Advisors were the SPDR S&P 500 ETF Trust (SPY) put option, SPDR S&P 500 ETF Trust (SPY) call option, Amazon put option, Amazon call option, and Invesco QQQ Trust Series 1 put option. These holdings represent 6.42%, 4.70%, 3.37%, 2.45%, and 1.34% of the firm’s portfolio, respectively, in the same quarter. Notably, these first five top holdings make up around 18.3% of Citadel’s total holdings.

Taking a position in both call options and put options generally suggest that the firm is hedging its portfolio from the uncertainty. The broader market S&P 500 Index is gradually making an all-time high. In the last five years, the index returned by nearly 52%. On a YTD (year-to-date) basis, the index returned nearly 22.3% as of November 1. Similarly, Amazon returned 19.3% on a YTD basis. In the last five years, the stock returned 486.5%. The returns are based on securities price movement. 

The top buys of Citadel in the second quarter of 2019 were SPDR Gold Shares (GLD) call option, Alphabet call option, Chipotle Mexican Grill put option, SPDR Gold Shares (GLD) put option, and the iShares iBoxx $ High Yield Corp Bd ETF (HYG). The firm raised its holdings in these securities by 0.36%, 0.34,% 0.29%, 0.27%, and 0.19%, respectively, in the same quarter.

A position in gold and gold tracking ETFs suggests that investors are safeguarding their position from economic turmoil. However, the situation is a bit different here. Citadel is taking a position in both the call and put option of GLD.  The percentage of call options beats put in the total portfolio. It suggests that Citadel expects a downside risk. But, the chances of a further growth in the economy can’t be ruled out.

The SPDR Gold Shares, which tracks the performance of the gold returned 26.5% over the last five years. But, the same ETF underperformed the S&P 500 by 4.7 percentage points on a year-to-date basis as of November 1, 2019.

The firm has a strong position in all the sectors’ economy. Also, Citadel has a strong position in the IT sector in Q2 2019. This sector represents 16.61% of the firm’s portfolio. Consumer Discretionary sector is another important constituent in the portfolio with holdings of 12.30%. On a YTD basis, the Technology Select Sector SPDR ETF (XLK), which tracks the performance of the technology sector, rose 36.6%, as of November 1, 2019. The Consumer Discretionary Select Sector SPDR ETF (XLY) follows the performance of the consumer discretionary. It returned 22.9% during the above period.

The top sells of Citadel in the second quarter of 2019 were the SPDR S&P 500 ETF Trust call option, the iShares Russell 2000 ETF (IWM) put option, Eli Lilly and Company (LLY), Apple call option, and salesforce.com (CRM). The firm lowered its holdings in these securities by 0.69%, 0.55%, 0.22%, 0.19%, and 0.18%, respectively, in the same quarter.