CitriniResearch’s Core Thematic Portfolio
CitriniResearch publishes our “core thematic portfolio” comprised of positions in our baskets, with sizing based on our current views. This is affectionately dubbed the “Citrindex” by readers.
Our model’s strategy incorporates active management that over/underweights themes, considers factor exposures, hedges certain risks and dynamically adjusts the holdings of baskets based on how trends progress.
This might mean that our list of holdings can look somewhat intimidating - it should not be.
You can view our portfolio management strategy as being diversified on a security level but concentrated at the thematic level. We don’t want to incur large swings in PnL because of the idiosyncracies of any single stock but, rather, position for continued thematic impact across the market & real world.
As long as we manage to keep a sharp edge on thematic trends, we believe this strategy can durably outperform the benchmark with less risk.
What does that mean in practice?
Consider someone who’s entire exposure is five SPDR S&P 500 Sector ETFs. In their portfolio they own, at varying weights, XLP, XLY, XLF, XLU and XLK.
Is that an intimidating book? Of course not. They have 5 positions.
In reality, they have exposure to hundreds of securities. They won’t do as well as if they’d owned the best performers in each ETF individually, but they’ll also experience significantly less volatility. This is because they’ll be less exposed to the risk of a single company and more to the risk of an entire sector/factor.
Our approach is the same - the only difference is that we decide what is in the “ETFs” and build them ourselves based off thematic exposure. Instead of the portfolio example described above, we try to outperform by isolating themes rather than sectors. These can be themes in the market (e.g. SMID-cap relative performance) or in the real world (e.g. second order impacts from demand for GLP-1 drugs).
An Example:
Say we are bullish on a new theme, “Theme A”. We publish our research on Theme A as a primer, which includes a long-only basket designed to go up if Theme A continues to proliferate. Let’s say this basket could contain 100 stocks, but we have whittled it down to 50 that we believe are good companies and have significant potential to gain based on our thematic expectations.
In our model portfolio, we initiate a 10% portfolio weight position in our basket for Theme A Basket. Assuming equal weighting, we end up with 50 positions each at 0.20% portfolio weight.
The way we think about it, however, is as one position: Long Theme A. The fact that it is currently comprised of 50 components is immaterial (and can change as the theme progresses - our AI basket initially had 121 stocks and is now only 32).
How to Utilize the Citrindex:
This is a question we get asked quite often, and the answer is always the same - it is up to you.
There is no denying that replicating this model portfolio can be labor intensive. Many have had luck cutting the work involved down using Fidelity and InteractiveBroker’s basket trader features. For us and our priorities, the time and effort is worth it. If it isn’t for you, you can hopefully derive value by monitoring the Citrindex’s dynamic thematic exposures to inform your own view.
Paid subscribers have access our portfolio, our latest attribution analysis and all associated commentary on holdings & portfolio management: