Do These Hedge Funds Regret Selling Chipotle Mexican Grill, Inc. (CMG)?

Is Chipotle Mexican Grill, Inc. (NYSE:CMG) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is Chipotle Mexican Grill, Inc. (NYSE:CMG) a buy right now? Investors who are in the know were selling. The number of bullish hedge fund bets went down by 7 lately. Chipotle Mexican Grill, Inc. (NYSE:CMG) was in 41 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 48. Our calculations also showed that CMG isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let’s take a peek at the fresh hedge fund action regarding Chipotle Mexican Grill, Inc. (NYSE:CMG).

What have hedge funds been doing with Chipotle Mexican Grill, Inc. (NYSE:CMG)?

Heading into the third quarter of 2020, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CMG over the last 20 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Chipotle Mexican Grill, Inc. (NYSE:CMG) was held by Renaissance Technologies, which reported holding $1698.9 million worth of stock at the end of September. It was followed by Pershing Square with a $1222 million position. Other investors bullish on the company included Citadel Investment Group, Alkeon Capital Management, and 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 15.76% of its 13F portfolio. Park Presidio Capital is also relatively very bullish on the stock, setting aside 6.48 percent of its 13F equity portfolio to CMG.

Because Chipotle Mexican Grill, Inc. (NYSE:CMG) has witnessed falling interest from hedge fund managers, it’s safe to say that there was a specific group of hedgies that decided to sell off their entire stakes by the end of the second quarter. Intriguingly, Eashwar Krishnan’s Tybourne Capital Management sold off the biggest stake of all the hedgies followed by Insider Monkey, totaling an estimated $134.3 million in stock, and Aaron Cowen’s Suvretta Capital Management was right behind this move, as the fund cut about $42.6 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 7 funds by the end of the second quarter.

Let’s go over hedge fund activity in other stocks similar to Chipotle Mexican Grill, Inc. (NYSE:CMG). These stocks are Travelers Companies Inc (NYSE:TRV), ZTO Express (Cayman) Inc. (NYSE:ZTO), Eversource Energy (NYSE:ES), Capital One Financial Corp. (NYSE:COF), Amphenol Corporation (NYSE:APH), T. Rowe Price Group, Inc. (NASDAQ:TROW), and IDEXX Laboratories, Inc. (NASDAQ:IDXX). This group of stocks’ market caps resemble CMG’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $756 million. That figure was $3781 million in CMG’s case. Capital One Financial Corp. (NYSE:COF) is the most popular stock in this table. On the other hand ZTO Express (Cayman) Inc. (NYSE:ZTO) is the least popular one with only 18 bullish hedge fund positions. Chipotle Mexican Grill, Inc. (NYSE:CMG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CMG is 54.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 gained 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Hedge funds were also right about betting on CMG as the stock returned 27.2% since the end of Q2 (through 10/23) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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