Citadel’s Value Strategy

Consistency

Since its inception in 2002, Citadel Value Fund has consistently stayed true to its deep value investment approach. It focuses on assessing a company’s intrinsic value through in-depth company and sector research. Investments are only made when a significant margin of safety exists. Citadel avoids speculating on how and when stock markets will perform, which sectors will out- or underperform or what interest rates and economic growth will be. Instead, its efforts are exclusively dedicated to identifying individual companies that align with Citadel’s value criteria.

Citadel’s investment process

These principles guide an investment process commonly known as bottom-up stock-picking, which Citadel implements without regard to index-, sector-, size- or geographical considerations. However, it is important to note that the Fund restricts its investing to companies listed in OECD countries, which serves as an additional risk mitigation factor. The Fund typically holds a portfolio of 20 to 40 carefully selected stocks for the long term. When stock markets offer limited opportunities meeting Citadel’s investment criteria, the default is holding cash.

Please find a detailed summary of Citadel’s investment process:

1. 1. Fundamental Company Analysis: We conduct in-depth research to identify undervalued stocks and estimate their intrinsic values using quantitative models. We exclude companies with excessive financial risks, such as high debt levels. The primary goal of our research is to develop an informed estimate of a company’s intrinsic value. If that appears impossible, we discard the investment idea.
   2. Purchase shares at Substantial Discounts: Once we have a reasonable estimate of intrinsic value, we proceed to invest only when the market offers a 50% discount to that intrinsic value. Otherwise, the investment idea is saved on a watchlist until a more attractive price opportunity arises.
   3. Balancing Diversification and Focus: Usually, the Fund holds positions in 20 to 40 individual stocks, providing a balanced level of diversification to protect against disappointments in individual holdings. This approach also allows the Fund to build meaningful positions when our analysis uncovers an undervalued gem.
   4. Long-Term Perspective: We cannot predict when undervalued shares will rise to their intrinsic value, nor do we believe that others can, at least not consistently and with any degree of reliability. Consequently, we invest with the intention of holding stocks for the long-term, often between three to five years or even longer.
   5. Sell at Intrinsic Value: Similarly, when selling, we rely on the same rigorous analysis of intrinsic value and aim to replace it with another undervalued stock. Speculating that a stock will move above our estimate of intrinsic value is not part of Citadel’s strategy. However, we do update our estimate of a company’s intrinsic value to account for developments that are structurally different from our initial assessment. When suitable replacements are unavailable due to market circumstances, we are comfortable holding cash until market opportunities arise again.