Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Chipotle Mexican Grill, Inc. (NYSE:CMG) and see how the stock is affected by the recent hedge fund activity.
Chipotle Mexican Grill, Inc. (NYSE:CMG) has experienced an increase in hedge fund sentiment lately. CMG was in 38 hedge funds' portfolios at the end of the third quarter of 2019. There were 37 hedge funds in our database with CMG holdings at the end of the previous quarter. Our calculations also showed that CMG isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_607931" align="aligncenter" width="450"] Bill Ackman of Pershing Square[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's analyze the fresh hedge fund action surrounding Chipotle Mexican Grill, Inc. (NYSE:CMG).
How have hedgies been trading Chipotle Mexican Grill, Inc. (NYSE:CMG)?
Heading into the fourth quarter of 2019, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from one quarter earlier. By comparison, 33 hedge funds held shares or bullish call options in CMG a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
The largest stake in Chipotle Mexican Grill, Inc. (NYSE:CMG) was held by Renaissance Technologies, which reported holding $1609 million worth of stock at the end of September. It was followed by Pershing Square with a $1449.2 million position. Other investors bullish on the company included Alkeon Capital Management, Balyasny Asset Management, and Hitchwood Capital Management. In terms of the portfolio weights assigned to each position Pershing Square allocated the biggest weight to Chipotle Mexican Grill, Inc. (NYSE:CMG), around 23.13% of its portfolio. 13D Management is also relatively very bullish on the stock, designating 7.29 percent of its 13F equity portfolio to CMG.
Consequently, some big names have jumped into Chipotle Mexican Grill, Inc. (NYSE:CMG) headfirst. Armistice Capital, managed by Steven Boyd, established the biggest position in Chipotle Mexican Grill, Inc. (NYSE:CMG). Armistice Capital had $25.2 million invested in the company at the end of the quarter. Brad Dunkley and Blair Levinsky's Waratah Capital Advisors also initiated a $22.6 million position during the quarter. The following funds were also among the new CMG investors: Anand Parekh's Alyeska Investment Group, Robert Pohly's Samlyn Capital, and Jay Genzer's Thames Capital Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Chipotle Mexican Grill, Inc. (NYSE:CMG) but similarly valued. We will take a look at Parker-Hannifin Corporation (NYSE:PH), Carnival Corporation & Plc (NYSE:CCL), Fortive Corporation (NYSE:FTV), and Archer Daniels Midland Company (NYSE:ADM). All of these stocks' market caps match CMG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PH,25,803965,-1 CCL,29,589089,-7 FTV,34,803239,6 ADM,21,511939,-5 Average,27.25,677058,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $677 million. That figure was $4058 million in CMG's case. Fortive Corporation (NYSE:FTV) is the most popular stock in this table. On the other hand Archer Daniels Midland Company (NYSE:ADM) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Chipotle Mexican Grill, Inc. (NYSE:CMG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CMG wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CMG were disappointed as the stock returned -3.2% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.