Chimera Investment Corporation (CIM) has three preferred shares we will be discussing. Instead of buying one preferred share and holding it indefinitely, we monitor relative valuations to identify opportunities to swap between preferred shares. We will be going over current valuations and then our trade history for a good example of how we implement that strategy in practice.
Preferred Shares
CIM-B (CIM.PR.B) is currently in the buy range and CIM-D (CIM.PR.D) is currently in our hold range. CIM-C (CIM.PR.C) is in our hold range and would only need to fall below $22.67 to be in our buy range.
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One of the biggest advantages of investing in preferred shares is that investors don’t need to take on the risks from the common stock to get an attractive yield. Sometimes the best opportunities come from recognizing when a preferred share is trading at an attractive valuation.
For a long time now, Chimera’s preferred shares have provided an excellent opportunity and example of how we use relative valuations to trade in and out of positions. The chart below highlights those trades.
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The following sections will walk readers through our decision-making process on these dates.
March 30, 2026, Buying CIM-C
Back in late March, we believe CIM-C became a great opportunity because it had materially underperformed most of the other mortgage REIT floating-rate preferred shares. That includes the other Chimera’s preferred shares as you can see in the chart above.
At the time, this was the difference in yield:
- CIM-C offered a stripped yield of just over 11%.
- CIM-B offered a stripped yield of 10.98%.
- CIM-D offered a stripped yield of 10.71%.
Looking at those prices, my thought was pretty simple: I bet other investors will bid more for these in the future. That doesn’t require Chimera to suddenly become a better company. It simply requires a valuation gap between very similar securities to shrink.
While we waited, investors were collecting an attractive dividend rate.
April 27, 2026, Harvesting The Gains
Over the following month, that trade worked extremely well.
CIM-C rallied sharply and thoroughly outperformed the comparable preferred shares. As the valuation gap narrowed, the original investment thesis played out.
We decided to harvest the gains.
We weren’t selling because we suddenly disliked Chimera. We weren’t reacting to negative news. We simply recognized that CIM-C had delivered the outperformance we expected.
One of the key values our service provides is the research to help investors find opportunities to swap between similar preferred shares. This was a great example of how we utilize our strategy focusing on relative valuations instead of becoming emotionally attached to a particular ticker.
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June 12, 2026, Another Opportunity
Less than two months later, another opportunity developed. Chimera’s preferred shares sold off rapidly over the course of a week. They weren’t even on my radar as potential buys the week before because they had been performing quite well.
Then they tanked.
Whenever I see a move like that, the first thing I want to know is whether the fundamentals changed. I double-checked Chimera’s common stock to see if there had been a major negative shift in investor perception.
Nothing.
The common shares were actually trading higher than they had been a week earlier. The preferred share scenario looked like sellers simply outnumbered buyers and prices declined in response.
Great.
Those are exactly the kinds of situations we like to investigate. After reviewing the fundamentals, I was comfortable purchasing both CIM-B and CIM-C because they had fallen back into attractive valuation ranges. The opportunity wasn’t created by improving fundamentals. It was created by changing prices.
June 17, 2026, Swapping Shares
Only a few days later, another relative value opportunity developed. CIM-C recovered quickly while MFA-C offered a better risk/reward profile, so we made another trade. We sold CIM-C and purchased MFA-C.
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I’m not getting married to these shares.
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I’m not trying to hold them forever.
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I’m simply taking advantage of a more attractive risk/reward profile.
We collect a pretty nice yield while we wait. If prices go up materially, or better opportunities appear elsewhere, we simply swap into the better opportunity.
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Final Thoughts
I think these trades demonstrate one of the biggest advantages of following relative valuations instead of simply buying a preferred share and forgetting about it. The goal isn’t to predict where preferred share prices will trade in isolation in the future. The goal is to consistently own the preferred share offering the best upside potential relative to its risk and relative to other preferred shares.
Sometimes that means buying a preferred share that has become cheap. Sometimes it means harvesting gains after relative gaps close. Other times it means swapping into another preferred share because the relative values have shifted.
Today’s ratings reflect the same process we continue to use. We believe CIM-B currently offers the most attractive valuation. CIM-D is approaching our buy range but remains closer to fair value today.
This is how we historically have looked at preferred shares. We expect relative valuations will continue to create opportunities for us in the future.
