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Did Hedge Funds Drop The Ball On El Pollo LoCo Holdings Inc (LOCO) ?

Debasis Saha

Is El Pollo LoCo Holdings Inc (NASDAQ:LOCO) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

El Pollo LoCo Holdings Inc (NASDAQ:LOCO) was in 10 hedge funds' portfolios at the end of the third quarter of 2019. LOCO investors should be aware of a decrease in enthusiasm from smart money lately. There were 11 hedge funds in our database with LOCO positions at the end of the previous quarter. Our calculations also showed that LOCO 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.

5 Most Popular Stocks Among Hedge Funds

Today there are tons of signals market participants can use to analyze publicly traded companies. A duo of the most underrated signals are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the top picks of the elite investment managers can outperform the S&P 500 by a superb margin (see the details here).

[caption id="attachment_193003" align="alignnone" width="600"] Chuck Royce of Royce & Associates[/caption]

Chuck Royce

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's take a glance at the latest hedge fund action encompassing El Pollo LoCo Holdings Inc (NASDAQ:LOCO).

Hedge fund activity in El Pollo LoCo Holdings Inc (NASDAQ:LOCO)

At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LOCO over the last 17 quarters. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Is LOCO A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the largest position in El Pollo LoCo Holdings Inc (NASDAQ:LOCO). Royce & Associates has a $5.7 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $1.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism include Israel Englander's Millennium Management, Renaissance Technologies and David E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to El Pollo LoCo Holdings Inc (NASDAQ:LOCO), around 0.05% of its 13F portfolio. ExodusPoint Capital is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to LOCO.

Due to the fact that El Pollo LoCo Holdings Inc (NASDAQ:LOCO) has experienced declining sentiment from the entirety of the hedge funds we track, logic holds that there were a few hedge funds that slashed their positions entirely by the end of the third quarter. It's worth mentioning that John Overdeck and David Siegel's Two Sigma Advisors cut the largest position of the "upper crust" of funds followed by Insider Monkey, totaling close to $1.9 million in stock. Matthew Hulsizer's fund, PEAK6 Capital Management, also dropped its stock, about $0 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 1 funds by the end of the third quarter.

Let's go over hedge fund activity in other stocks similar to El Pollo LoCo Holdings Inc (NASDAQ:LOCO). These stocks are Hibbett Sports, Inc. (NASDAQ:HIBB), Unifi, Inc. (NYSE:UFI), Hingham Institution for Savings (NASDAQ:HIFS), and Teekay Corporation (NYSE:TK). This group of stocks' market caps are closest to LOCO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HIBB,14,80882,-1 UFI,15,88362,3 HIFS,5,7034,0 TK,8,22795,-5 Average,10.5,49768,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $9 million in LOCO's case. Unifi, Inc. (NYSE:UFI) is the most popular stock in this table. On the other hand Hingham Institution for Savings (NASDAQ:HIFS) is the least popular one with only 5 bullish hedge fund positions. El Pollo LoCo Holdings Inc (NASDAQ:LOCO) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on LOCO as the stock returned 47.1% during the first two months of Q4 and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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