Ensemble Capital, an investment management firm, published its first-quarter 2022 investor letter – a copy of which can be seen here. While this recent quarter represents the fund’s largest degree of underperformance, so too did its 2020 results. In 2020 the Fund was up 30.89% vs the S&P 500 up 18.39% for 12.51% outperformance. It is clear to us that the pandemic has caused much larger and more rapid relative swings in asset pricing as investors struggle to grapple with the implications of an economic event of an unprecedented nature. In this context, you can see that the fund’s first-quarter underperformance of 11.03% is clearly a bad outcome, and yet is not inconsistent with other periods of weak performance that have occurred in the context of its long-term track record of outperformance. Try to spend some time taking a look at the fund’s top 5 holdings to be informed about their best picks for 2022.
In its Q1 2022 investor letter, Ensemble Capital mentioned Chipotle Mexican Grill, Inc. (NYSE:CMG) and explained its insights for the company. Founded in 1993, Chipotle Mexican Grill, Inc. (NYSE:CMG) is a Newport Beach, California-based restaurant company with a $45.1 billion market capitalization. Chipotle Mexican Grill, Inc. (NYSE:CMG) delivered a -7.76% return since the beginning of the year, while its 12-month returns are up by 8.96%. The stock closed at $1,612.58 per share on April 20, 2022.
Here is what Ensemble Capital has to say about Chipotle Mexican Grill, Inc. (NYSE:CMG) in its Q1 2022 investor letter:
“Chipotle (6.0% weight in the Fund): In a recent blog post called GREAT COMPANIES ARE FORGED DURING CRISIS we discussed why companies with economic moats, relevant products and services, and those that create stakeholder value are more resilient in the face of crisis than the average company. Less advantaged competitors, in turn, struggle, which creates opportunities for great companies to get even better.
We think Chipotle navigated the COVID environment better than any major quick-serve restaurant and has consequently gone from strength to strength. Indeed, from March 1, 2020 to March 31, 2022, Chipotle shares gained 106% versus the S&P 500 Restaurants Index’s 28% return, including dividends.
To be sure, going into 2020, Chipotle had some recent experience in managing through a crisis. Its self-inflicted foodborne illness crisis that occurred in 2015 and 2016 threatened to permanently impair Chipotle’s brand value and damage customer trust. While the company made some changes at the top, bringing in Brian Niccol as CEO, and reorganized its food preparation processes, it did not abandon its mission of providing customers with freshly-prepared, sustainably-sourced food. Even at the nadir of its crisis, the average revenue of a Chipotle restaurant remained in line with the average fast casual restaurant in the US.
When COVID arrived, Chipotle quickly made changes to its strategy. It had planned on doing a marketing push for its new Queso Blanco cheese dip in March 2020 but pivoted to free delivery to ensure its customers could get Chipotle during quarantine. Because Chipotle restaurants are all company-owned (versus most fast-food chains being franchise models), it was nimble amid panic in the restaurant industry. The company continued to build restaurants (161 new stores in 2020) and seized the opportunity to move into prime locations and add more “Chipotlane” drive-thrus…” (Click here to see the full text)
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Our calculations show that Chipotle Mexican Grill, Inc. (NYSE:CMG) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Chipotle Mexican Grill, Inc. (NYSE:CMG) was in 47 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 39 funds in the previous quarter. Chipotle Mexican Grill, Inc. (NYSE:CMG) delivered a 13.53% return in the past 3 months.
In February 2022, we also shared another hedge fund’s views on Chipotle Mexican Grill, Inc. (NYSE:CMG) in another article. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q1 page.
Disclosure: None. This article is originally published at Insider Monkey.
