Between June 25 and October 30th the Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 14 percentage points as investors worried over the possible ramifications of rising interest rates. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor, and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Cherry Hill Mortgage Investment Corp (NYSE:CHMI) and see how the stock is affected by the recent hedge fund activity.
Is Cherry Hill Mortgage Investment Corp (NYSE:CHMI) undervalued? Prominent investors are getting less optimistic. The number of long hedge fund positions went down by 1 in recent months. The shares of the company were down 6.1% during the quarter, but this decline cannot be credited for the drop in hedge fund interest, unless a detailed analysis is done. Let us find out more about the hedge funds that held positions in Cherry Hill Mortgage Investment Corp (NYSE:CHMI) at the end of September.
In order to find out the hedge fund behavior towards companies with similar market cap, we will compare Cherry Hill Mortgage Investment Corp (NYSE:CHMI) to other stocks, including, Ampco-Pittsburgh Corp. (NYSE:AP), and Rex Energy Corporation (NASDAQ:REXX) to get a better sense of its popularity.
Follow Cherry Hill Mortgage Investment Corp (NYSE:CHMI)
Follow Cherry Hill Mortgage Investment Corp (NYSE:CHMI)
To most investors, hedge funds are seen as worthless, old investment vehicles of the past. While there are greater than 8000 funds trading at present, we hone in on the masters of this group, around 700 funds. These investment experts direct most of the hedge fund industry’s total asset base, and by observing their unrivaled stock picks, Insider Monkey has discovered numerous investment strategies that have historically beaten the broader indices. Insider Monkey’s small-cap hedge fund strategy surpassed the S&P 500 index by 12 percentage points annually for a decade in their back tests.
With all of this in mind, we’re going to take a gander at the latest action regarding Cherry Hill Mortgage Investment Corp (NYSE:CHMI).
What does the smart money think about Cherry Hill Mortgage Investment Corp (NYSE:CHMI)?
Heading into Q4, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a drop of 14% from the previous quarter. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Paul Magidson, Jonathan Cohen. And Ostrom Enders’s Castine Capital Management has the biggest position in Cherry Hill Mortgage Investment Corp (NYSE:CHMI), worth close to $4.1 million, accounting for 1.8% of its total 13F portfolio. Coming in second is Mangrove Partners, managed by Nathaniel August, which holds a $2.5 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism contain Andy Redleaf’s Whitebox Advisors, Ken Griffin’s Citadel Investment Group, and Renaissance Technologies.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Two Sigma Advisors. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically, a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case here because none of the 700+ hedge funds tracked by Insider Monkey identified Cherry Hill Mortgage Investment Corp (NYSE:CHMI) as a viable investment and initiated a position in the stock.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Cherry Hill Mortgage Investment Corp (NYSE:CHMI) but similarly valued. These stocks are, Ampco-Pittsburgh Corp. (NYSE:AP), Rex Energy Corporation (NASDAQ:REXX), and Entegra Financial Corp (NASDAQ:ENFC). This group of stocks’ market values resemble Cherry Hill Mortgage Investment Corp (NYSE:CHMI)’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AP | 7 | 22562 | 1 |
| REXX | 5 | 2708 | -2 |
| ENFC | 4 | 13419 | -1 |
As you can see, these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $11 million in Cherry Hill Mortgage Investment Corp (NYSE:CHMI)’s case. Ampco-Pittsburgh Corp. (NYSE:AP) is the most popular stock in this table. On the other hand, Entegra Financial Corp (NASDAQ:ENFC) is the least popular one with only 4 bullish hedge fund positions. Cherry Hill Mortgage Investment Corp (NYSE:CHMI) is not the most popular stock in this group, but hedge fund interest is still above average. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard, Ampco-Pittsburgh Corp. (NYSE:AP) might be a better candidate to consider a long position.
