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Where Do Hedge Funds Stand On Cherry Hill Mortgage Investment Corp (CHMI)?

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·6 min read
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In this article we will analyze whether Cherry Hill Mortgage Investment Corp (NYSE:CHMI) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Cherry Hill Mortgage Investment Corp (NYSE:CHMI) was in 8 hedge funds' portfolios at the end of September. The all time high for this statistics is 10. CHMI investors should be aware of a decrease in enthusiasm from smart money in recent months. There were 10 hedge funds in our database with CHMI holdings at the end of June. Our calculations also showed that CHMI 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

David Siegel of Two Sigma Advisors
David Siegel of Two Sigma Advisors

David Siegel of Two Sigma Advisors

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. With all of this in mind let's take a look at the latest hedge fund action encompassing Cherry Hill Mortgage Investment Corp (NYSE:CHMI).

What have hedge funds been doing with Cherry Hill Mortgage Investment Corp (NYSE:CHMI)?

Heading into the fourth quarter of 2020, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in CHMI 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.

Is CHMI A Good Stock To Buy?
Is CHMI A Good Stock To Buy?

More specifically, Renaissance Technologies was the largest shareholder of Cherry Hill Mortgage Investment Corp (NYSE:CHMI), with a stake worth $10.4 million reported as of the end of September. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $3.1 million. Winton Capital Management, Granite Point Capital, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Almitas Capital allocated the biggest weight to Cherry Hill Mortgage Investment Corp (NYSE:CHMI), around 0.28% of its 13F portfolio. Granite Point Capital is also relatively very bullish on the stock, earmarking 0.07 percent of its 13F equity portfolio to CHMI.

Seeing as Cherry Hill Mortgage Investment Corp (NYSE:CHMI) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of hedge funds that slashed their positions entirely heading into Q4. Interestingly, Michael Gelband's ExodusPoint Capital said goodbye to the largest stake of all the hedgies monitored by Insider Monkey, totaling close to $0.4 million in stock. Greg Eisner's fund, Engineers Gate Manager, also cut its stock, about $0.2 million worth. These moves are important to note, as total hedge fund interest fell by 2 funds heading into Q4.

Let's check out hedge fund activity in other stocks similar to Cherry Hill Mortgage Investment Corp (NYSE:CHMI). These stocks are AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO), Standard AVB Financial Corp. (NASDAQ:STND), Exicure, Inc. (NASDAQ:XCUR), Culp, Inc. (NYSE:CULP), Galectin Therapeutics Inc. (NASDAQ:GALT), Matinas Biopharma Holdings, Inc. (NYSE:MTNB), and Vericity, Inc. (NASDAQ:VERY). This group of stocks' market values are closest to CHMI's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AVEO,8,7851,-5 STND,3,8593,2 XCUR,11,21812,2 CULP,14,18280,0 GALT,2,74,-2 MTNB,6,9947,-4 VERY,2,1177,0 Average,6.6,9676,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.6 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $18 million in CHMI's case. Culp, Inc. (NYSE:CULP) is the most popular stock in this table. On the other hand Galectin Therapeutics Inc. (NASDAQ:GALT) is the least popular one with only 2 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. Our overall hedge fund sentiment score for CHMI is 52. 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. This is a slightly positive signal but 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and beat the market again by 16 percentage points. Unfortunately CHMI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CHMI were disappointed as the stock returned 1.8% since the end of September (through 12/2) 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 many of these stocks already outperformed the market so far this year.

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

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