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Hedge Funds Done Buying Chipotle Mexican Grill, Inc. (CMG)?

Debasis Saha

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Chipotle Mexican Grill, Inc. (NYSE:CMG).

Hedge fund interest in Chipotle Mexican Grill, Inc. (NYSE:CMG) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare CMG to other stocks including Cintas Corporation (NASDAQ:CTAS), China Unicom (Hong Kong) Limited (NYSE:CHU), and Ameren Corporation (NYSE:AEE) to get a better sense of its popularity. Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 44 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Bill Ackman Pershing Square

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. Also, Europe is set to become the world’s largest cannabis market, so we checked out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to view the fresh hedge fund action regarding Chipotle Mexican Grill, Inc. (NYSE:CMG).

What does smart money think about Chipotle Mexican Grill, Inc. (NYSE:CMG)?

Heading into the second quarter of 2020, a total of 48 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CMG over the last 18 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Is CMG A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Jim Simons (founder)'s Renaissance Technologies has the most valuable position in Chipotle Mexican Grill, Inc. (NYSE:CMG), worth close to $1.2036 billion, accounting for 1.2% of its total 13F portfolio. Coming in second is Pershing Square, managed by Bill Ackman, which holds a $759.9 million position; the fund has 11.6% of its 13F portfolio invested in the stock. Remaining peers that hold long positions encompass Ken Griffin's Citadel Investment Group, Panayotis Takis Sparaggis's Alkeon Capital Management and D. E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Pershing Square allocated the biggest weight to Chipotle Mexican Grill, Inc. (NYSE:CMG), around 11.56% of its 13F portfolio. Emerson Point Capital is also relatively very bullish on the stock, dishing out 8.15 percent of its 13F equity portfolio to CMG.

Since Chipotle Mexican Grill, Inc. (NYSE:CMG) has experienced falling interest from hedge fund managers, it's easy to see that there lies a certain "tier" of hedgies that elected to cut their positions entirely last quarter. Interestingly, James Crichton's Hitchwood Capital Management dumped the biggest investment of the 750 funds watched by Insider Monkey, totaling about $76.5 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also said goodbye to its stock, about $71.1 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now take a look at hedge fund activity in other stocks similar to Chipotle Mexican Grill, Inc. (NYSE:CMG). We will take a look at Cintas Corporation (NASDAQ:CTAS), China Unicom (Hong Kong) Limited (NYSE:CHU), Ameren Corporation (NYSE:AEE), and Fastenal Company (NASDAQ:FAST). This group of stocks' market valuations are similar to CMG's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CTAS,42,458144,-3 CHU,6,47948,-5 AEE,21,723627,-10 FAST,34,588054,1 Average,25.75,454443,-4.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $454 million. That figure was $2674 million in CMG's case. Cintas Corporation (NASDAQ:CTAS) is the most popular stock in this table. On the other hand China Unicom (Hong Kong) Limited (NYSE:CHU) is the least popular one with only 6 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 7.9% in 2020 through May 22nd but still managed to beat the market by 15.6 percentage points. Hedge funds were also right about betting on CMG as the stock returned 61.3% so far in Q2 (through May 22nd) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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