While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Chimera Investment Corporation (NYSE:CIM).
Is CIM a good stock to buy now? Chimera Investment Corporation (NYSE:CIM) has experienced an increase in hedge fund sentiment in recent months. Chimera Investment Corporation (NYSE:CIM) was in 20 hedge funds' portfolios at the end of September. The all time high for this statistic is 17. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 17 hedge funds in our database with CIM holdings at the end of June. 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 for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Bill Miller of Miller Value Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind we're going to review the new hedge fund action encompassing Chimera Investment Corporation (NYSE:CIM).
Do Hedge Funds Think CIM Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards CIM over the last 21 quarters. With the smart money's sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
The largest stake in Chimera Investment Corporation (NYSE:CIM) was held by Omega Advisors, which reported holding $27.9 million worth of stock at the end of September. It was followed by Millennium Management with a $9.5 million position. Other investors bullish on the company included Citadel Investment Group, Arrowstreet Capital, and Centiva Capital. In terms of the portfolio weights assigned to each position Omega Advisors allocated the biggest weight to Chimera Investment Corporation (NYSE:CIM), around 2.74% of its 13F portfolio. Centiva Capital is also relatively very bullish on the stock, earmarking 0.4 percent of its 13F equity portfolio to CIM.
As industrywide interest jumped, key money managers were leading the bulls' herd. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the largest position in Chimera Investment Corporation (NYSE:CIM). Balyasny Asset Management had $5.8 million invested in the company at the end of the quarter. Bill Miller's Miller Value Partners also initiated a $2.3 million position during the quarter. The other funds with new positions in the stock are Donald Sussman's Paloma Partners, Matthew Hulsizer's PEAK6 Capital Management, and Benjamin A. Smith's Laurion Capital Management.
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 Pacific Premier Bancorp, Inc. (NASDAQ:PPBI), Prospect Capital Corporation (NASDAQ:PSEC), Pacific Biosciences of California, Inc. (NASDAQ:PACB), CommVault Systems, Inc. (NASDAQ:CVLT), Bed Bath & Beyond Inc. (NASDAQ:BBBY), Summit Materials Inc (NYSE:SUM), and Shutterstock Inc (NYSE:SSTK). This group of stocks' market valuations are similar to CIM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PPBI,8,62494,-3 PSEC,7,13771,0 PACB,25,380591,3 CVLT,24,426431,2 BBBY,32,498555,-1 SUM,31,198477,8 SSTK,19,130847,3 Average,20.9,244452,1.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.9 hedge funds with bullish positions and the average amount invested in these stocks was $244 million. That figure was $81 million in CIM's case. Bed Bath & Beyond Inc. (NASDAQ:BBBY) is the most popular stock in this table. On the other hand Prospect Capital Corporation (NASDAQ:PSEC) is the least popular one with only 7 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. Our overall hedge fund sentiment score for CIM is 64. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on CIM as the stock returned 28.3% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.