Hedge Funds Aren’t Crazy About El Pollo LoCo Holdings Inc (LOCO)

In this article we will take a look at whether hedge funds think El Pollo LoCo Holdings Inc (NASDAQ:LOCO) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is El Pollo LoCo Holdings Inc (NASDAQ:LOCO) a buy, sell, or hold? Investors who are in the know are getting less bullish. The number of bullish hedge fund bets were trimmed by 3 in recent months. Our calculations also showed that LOCO isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). LOCO was in 9 hedge funds’ portfolios at the end of March. There were 12 hedge funds in our database with LOCO holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.


Philippe Laffont of Coatue Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to review the new hedge fund action surrounding El Pollo LoCo Holdings Inc (NASDAQ:LOCO).

What does smart money think about El Pollo LoCo Holdings Inc (NASDAQ:LOCO)?

At the end of the first quarter, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from one quarter earlier. On the other hand, there were a total of 16 hedge funds with a bullish position in LOCO a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of El Pollo LoCo Holdings Inc (NASDAQ:LOCO), with a stake worth $1.7 million reported as of the end of September. Trailing Renaissance Technologies was Maverick Capital, which amassed a stake valued at $1.1 million. Coatue Management, D E Shaw, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Maverick Capital allocated the biggest weight to El Pollo LoCo Holdings Inc (NASDAQ:LOCO), around 0.02% of its 13F portfolio. Schonfeld Strategic Advisors is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to LOCO.

Due to the fact that El Pollo LoCo Holdings Inc (NASDAQ:LOCO) has faced declining sentiment from the smart money, it’s safe to say that there were a few hedgies that slashed their positions entirely in the first quarter. Intriguingly, Chuck Royce’s Royce & Associates said goodbye to the biggest investment of the “upper crust” of funds monitored by Insider Monkey, valued at close to $5.8 million in stock. Israel Englander’s fund, Millennium Management, also dropped its stock, about $1.6 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 3 funds in the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as El Pollo LoCo Holdings Inc (NASDAQ:LOCO) but similarly valued. We will take a look at Corporacion America Airports SA (NYSE:CAAP), Benefytt Technologies, Inc. (NASDAQ:BFYT), Repro Med Systems, Inc. (NASDAQ:KRMD), and Shoe Carnival, Inc. (NASDAQ:SCVL). This group of stocks’ market valuations resemble LOCO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CAAP 8 7488 -2
BFYT 16 115245 -2
KRMD 10 9334 2
SCVL 11 31637 -5
Average 11.25 40926 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $41 million. That figure was $4 million in LOCO’s case. Benefytt Technologies, Inc. (NASDAQ:BFYT) is the most popular stock in this table. On the other hand Corporacion America Airports SA (NYSE:CAAP) is the least popular one with only 8 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 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 13.4% in 2020 through June 22nd and still beat the market by 15.9 percentage points. A small number of hedge funds were also right about betting on LOCO as the stock returned 72.1% during the second quarter and outperformed the market by an even larger margin.

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