Hedge Funds Were Getting Burned By Chimera Investment Corporation (CIM) Before The Coronavirus

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Chimera Investment Corporation (NYSE:CIM) based on those filings.

Chimera Investment Corporation (NYSE:CIM) has experienced an increase in hedge fund sentiment in recent months. CIM was in 14 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 13 hedge funds in our database with CIM positions at the end of the previous quarter. Our calculations also showed that CIM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

Today there are a large number of methods shareholders can use to assess stocks. Some of the best methods are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the top picks of the top investment managers can outclass their index-focused peers by a healthy margin (see the details here).

Leon Cooperman Omega Advisors

Leon Cooperman of Omega Advisors

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a peek at the latest hedge fund action surrounding Chimera Investment Corporation (NYSE:CIM).

Hedge fund activity in Chimera Investment Corporation (NYSE:CIM)

Heading into the first quarter of 2020, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from one quarter earlier. By comparison, 11 hedge funds held shares or bullish call options in CIM a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Omega Advisors was the largest shareholder of Chimera Investment Corporation (NYSE:CIM), with a stake worth $73.9 million reported as of the end of September. Trailing Omega Advisors was Renaissance Technologies, which amassed a stake valued at $26.6 million. Winton Capital Management, HBK Investments, and Point72 Asset Management 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 Omega Advisors allocated the biggest weight to Chimera Investment Corporation (NYSE:CIM), around 3.93% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, dishing out 0.12 percent of its 13F equity portfolio to CIM.

Consequently, key hedge funds have jumped into Chimera Investment Corporation (NYSE:CIM) headfirst. HBK Investments, managed by David Costen Haley, initiated the biggest position in Chimera Investment Corporation (NYSE:CIM). HBK Investments had $7.1 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $1.8 million position during the quarter. The other funds with brand new CIM positions are Bruce Kovner’s Caxton Associates LP, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Frederick DiSanto’s Ancora Advisors.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Chimera Investment Corporation (NYSE:CIM) but similarly valued. These stocks are Mercury Systems Inc (NASDAQ:MRCY), Aaron’s, Inc. (NYSE:AAN), Compania de Minas Buenaventura S.A.A. (NYSE:BVN), and Bank of Hawaii Corporation (NYSE:BOH). This group of stocks’ market valuations are closest to CIM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MRCY 24 50633 2
AAN 32 368602 14
BVN 13 141024 5
BOH 16 142274 2
Average 21.25 175633 5.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $176 million. That figure was $123 million in CIM’s case. Aaron’s, Inc. (NYSE:AAN) is the most popular stock in this table. On the other hand Compania de Minas Buenaventura S.A.A. (NYSE:BVN) is the least popular one with only 13 bullish hedge fund positions. Chimera Investment Corporation (NYSE:CIM) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately CIM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); CIM investors were disappointed as the stock returned -54.7% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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