Is Chimera Investment Corporation (CIM) Going to Burn These Hedge Funds?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Chimera Investment Corporation (NYSE:CIM).

Is Chimera Investment Corporation (NYSE:CIM) a buy right now? The best stock pickers are in a bearish mood. The number of bullish hedge fund positions fell by 1 lately. Our calculations also showed that CIM isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). CIM was in 12 hedge funds’ portfolios at the end of the third quarter of 2019. There were 13 hedge funds in our database with CIM positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are numerous formulas stock traders employ to value their holdings. Two of the best formulas are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the top picks of the top hedge fund managers can outperform the S&P 500 by a very impressive margin (see the details here).


Leon Cooperman of Omega Advisors

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the new hedge fund action surrounding Chimera Investment Corporation (NYSE:CIM).

What does smart money think about Chimera Investment Corporation (NYSE:CIM)?

At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in CIM a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Omega Advisors, managed by Leon Cooperman, holds the biggest position in Chimera Investment Corporation (NYSE:CIM). Omega Advisors has a $93.4 million position in the stock, comprising 5.6% of its 13F portfolio. Coming in second is Renaissance Technologies, holding a $22 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other peers with similar optimism include David Harding’s Winton Capital Management, Bill Miller’s Miller Value Partners and Steve Cohen’s Point72 Asset Management. In terms of the portfolio weights assigned to each position Omega Advisors allocated the biggest weight to Chimera Investment Corporation (NYSE:CIM), around 5.55% of its 13F portfolio. Miller Value Partners is also relatively very bullish on the stock, designating 0.17 percent of its 13F equity portfolio to CIM.

Due to the fact that Chimera Investment Corporation (NYSE:CIM) has faced falling interest from the entirety of the hedge funds we track, we can see that there is a sect of fund managers that slashed their entire stakes heading into Q4. Interestingly, Ken Griffin’s Citadel Investment Group dropped the biggest position of the 750 funds watched by Insider Monkey, totaling an estimated $3.5 million in stock. Bruce Kovner’s fund, Caxton Associates, also dumped its stock, about $0.9 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 1 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to Chimera Investment Corporation (NYSE:CIM). We will take a look at Rayonier Inc. (NYSE:RYN), Wintrust Financial Corporation (NASDAQ:WTFC), ACI Worldwide Inc (NASDAQ:ACIW), and Texas Roadhouse Inc (NASDAQ:TXRH). This group of stocks’ market caps are similar to CIM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RYN 13 317215 -1
WTFC 19 285013 -4
ACIW 21 295588 -2
TXRH 22 225889 -1
Average 18.75 280926 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $281 million. That figure was $133 million in CIM’s case. Texas Roadhouse Inc (NASDAQ:TXRH) is the most popular stock in this table. On the other hand Rayonier Inc. (NYSE:RYN) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Chimera Investment Corporation (NYSE:CIM) is even less popular than RYN. Hedge funds dodged a bullet by taking a bearish stance towards CIM. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CIM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CIM investors were disappointed as the stock returned 4.1% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.

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