It was a rough fourth quarter for many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 18.7% so far in 2019 and outperformed the S&P 500 ETF by 6.6 percentage points. We are done processing the latest 13f filings and in this article we will study how hedge fund sentiment towards Chimera Investment Corporation (NYSE:CIM) changed during the first quarter.
Is Chimera Investment Corporation (NYSE:CIM) a buy, sell, or hold? Money managers are in a pessimistic mood. The number of long hedge fund positions shrunk by 1 lately. Our calculations also showed that cim isn’t among the 30 most popular stocks among hedge funds.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Let’s go over the key hedge fund action surrounding Chimera Investment Corporation (NYSE:CIM).
How are hedge funds trading Chimera Investment Corporation (NYSE:CIM)?
At Q1’s end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in CIM over the last 15 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
Among these funds, Omega Advisors held the most valuable stake in Chimera Investment Corporation (NYSE:CIM), which was worth $90.4 million at the end of the first quarter. On the second spot was Renaissance Technologies which amassed $21.8 million worth of shares. Moreover, PEAK6 Capital Management, Citadel Investment Group, and Winton Capital Management were also bullish on Chimera Investment Corporation (NYSE:CIM), allocating a large percentage of their portfolios to this stock.
Because Chimera Investment Corporation (NYSE:CIM) has faced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of fund managers that decided to sell off their full holdings in the third quarter. At the top of the heap, Israel Englander’s Millennium Management said goodbye to the largest stake of all the hedgies watched by Insider Monkey, totaling an estimated $2.6 million in stock, and Matthew Hulsizer’s PEAK6 Capital Management was right behind this move, as the fund sold off about $0.3 million worth. These moves are important to note, as total hedge fund interest was cut by 1 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Chimera Investment Corporation (NYSE:CIM). We will take a look at Silicon Laboratories Inc. (NASDAQ:SLAB), AU Optronics Corp. (NYSE:AUO), Liberty Latin America Ltd. (NASDAQ:LILA), and Telephone & Data Systems, Inc. (NYSE:TDS). This group of stocks’ market values match CIM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SLAB | 12 | 40386 | -5 |
| AUO | 8 | 63727 | -1 |
| LILA | 14 | 163739 | 1 |
| TDS | 23 | 438093 | 1 |
| Average | 14.25 | 176486 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $176 million. That figure was $118 million in CIM’s case. Telephone & Data Systems, Inc. (NYSE:TDS) is the most popular stock in this table. On the other hand AU Optronics Corp. (NYSE:AUO) is the least popular one with only 8 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 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 2.5% 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
