Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.
Chimera Investment Corporation (NYSE:CIM) was in 11 hedge funds’ portfolios at the end of the third quarter of 2016. CIM investors should pay attention to a decrease in hedge fund interest in recent months. There were 13 hedge funds in our database with CIM holdings at the end of the previous quarter. At the end of this article we will also compare CIM to other stocks including RLI Corp. (NYSE:RLI), Tech Data Corp (NASDAQ:TECD), and Spirit Airlines Incorporated (NASDAQ:SAVE) to get a better sense of its popularity.
Follow Chimera Investment Corp (NYSE:CIM)
Follow Chimera Investment Corp (NYSE:CIM)
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
designer491/Shutterstock.com
Hedge fund activity in Chimera Investment Corporation (NYSE:CIM)
Heading into the fourth quarter of 2016, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, down by 15% from the previous quarter. By comparison, 14 hedge funds held shares or bullish call options in CIM heading into this year. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Leon Cooperman’s Omega Advisors has the most valuable position in Chimera Investment Corporation (NYSE:CIM), worth close to $47 million, corresponding to 1.4% of its total 13F portfolio. The second most bullish fund manager is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $42 million position. Remaining peers with similar optimism comprise John Overdeck and David Siegel’s Two Sigma Advisors, and Ken Griffin’s Citadel Investment Group. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
We already know that not all hedge funds are bullish on the stock and some hedge funds actually cut their positions entirely. It’s worth mentioning that Robert Raiff’s Raiff Partners cut the biggest position of the “upper crust” of funds tracked by Insider Monkey, totaling about $2.4 million in stock, and Peter Muller’s PDT Partners was right behind this move, as the fund sold off about $1 million worth of shares.
Let’s also examine 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 RLI Corp. (NYSE:RLI), Tech Data Corp (NASDAQ:TECD), Spirit Airlines Incorporated (NASDAQ:SAVE), and Owens-Illinois Inc (NYSE:OI). 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 |
|---|---|---|---|
| RLI | 9 | 120998 | -2 |
| TECD | 22 | 294161 | 6 |
| SAVE | 30 | 338110 | 8 |
| OI | 25 | 689067 | -2 |
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $361 million. That figure was $106 million in CIM’s case. Spirit Airlines Incorporated (NASDAQ:SAVE) is the most popular stock in this table. On the other hand RLI Corp. (NYSE:RLI) is the least popular one with only 9 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. In this regard SAVE might be a better candidate to consider taking a long position in.
Disclosure: None
