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Were Hedge Funds Right About Betting On Chimera Investment Corporation (CIM)?

Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Chimera Investment Corporation (NYSE:CIM).

Is Chimera Investment Corporation (NYSE:CIM) a buy, sell, or hold? The best stock pickers are becoming hopeful. The number of bullish hedge fund positions moved up by 3 in recent months. Our calculations also showed that CIM isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Bill Miller

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a gander at the new hedge fund action regarding Chimera Investment Corporation (NYSE:CIM).

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

At the end of the second quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 30% from the first quarter of 2019. On the other hand, there were a total of 10 hedge funds with a bullish position in CIM a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with CIM Positions

More specifically, Omega Advisors was the largest shareholder of Chimera Investment Corporation (NYSE:CIM), with a stake worth $90.1 million reported as of the end of March. Trailing Omega Advisors was Renaissance Technologies, which amassed a stake valued at $12.9 million. Miller Value Partners, Citadel Investment Group, and Winton Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

As aggregate interest increased, specific money managers have been driving this bullishness. Miller Value Partners, managed by Bill Miller, initiated the most outsized position in Chimera Investment Corporation (NYSE:CIM). Miller Value Partners had $4.2 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $0.8 million position during the quarter. The other funds with new positions in the stock are Matthew Hulsizer’s PEAK6 Capital Management, Israel Englander’s Millennium Management, and Claes Fornell’s CSat Investment Advisory.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Chimera Investment Corporation (NYSE:CIM) but similarly valued. We will take a look at PBF Energy Inc (NYSE:PBF), Glacier Bancorp, Inc. (NASDAQ:GBCI), Grocery Outlet Holding Corp. (NASDAQ:GO), and Macquarie Infrastructure Corporation (NYSE:MIC). This group of stocks’ market values resemble CIM’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PBF 26 358655 4
GBCI 17 63296 5
GO 21 152804 21
MIC 28 203080 4
Average 23 194459 8.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $194 million. That figure was $116 million in CIM’s case. Macquarie Infrastructure Corporation (NYSE:MIC) is the most popular stock in this table. On the other hand Glacier Bancorp, Inc. (NASDAQ:GBCI) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Chimera Investment Corporation (NYSE:CIM) is even less popular than GBCI. Hedge funds clearly dropped the ball on CIM as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on CIM as the stock returned 6.3% during the third quarter and outperformed the market by an even larger margin.

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

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