We can judge whether Great Ajax Corp (NYSE:AJX) 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 when we factor in known risk factors.
Is Great Ajax Corp (NYSE:AJX) a bargain? The best stock pickers are in an optimistic mood. The number of long hedge fund bets improved by 4 recently. Our calculations also showed that AJX isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
[caption id="attachment_27480" align="aligncenter" width="450"] Israel Englander of Millennium Management[/caption]
In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Let's analyze the key hedge fund action encompassing Great Ajax Corp (NYSE:AJX).
What does smart money think about Great Ajax Corp (NYSE:AJX)?
At the end of the second quarter, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 100% from the previous quarter. On the other hand, there were a total of 3 hedge funds with a bullish position in AJX a year ago. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, Almitas Capital was the largest shareholder of Great Ajax Corp (NYSE:AJX), with a stake worth $7.8 million reported as of the end of March. Trailing Almitas Capital was Shoals Capital Management, which amassed a stake valued at $6.3 million. Renaissance Technologies, Ellington, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Now, some big names were breaking ground themselves. Millennium Management, managed by Israel Englander, established the most outsized position in Great Ajax Corp (NYSE:AJX). Millennium Management had $0.4 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also initiated a $0.2 million position during the quarter. The other funds with new positions in the stock are John Overdeck and David Siegel's Two Sigma Advisors and Roger Ibbotson's Zebra Capital Management.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Great Ajax Corp (NYSE:AJX) but similarly valued. We will take a look at 22nd Century Group, Inc (NYSE:XXII), Xinyuan Real Estate Co., Ltd. (NYSE:XIN), Hamilton Beach Brands Holding Company (NYSE:HBB), and Intelligent Systems Corporation (NYSE:INS). This group of stocks' market valuations are similar to AJX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position XXII,3,328,1 XIN,7,3605,0 HBB,1,1541,-2 INS,7,70269,2 Average,4.5,18936,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.5 hedge funds with bullish positions and the average amount invested in these stocks was $19 million. That figure was $17 million in AJX's case. Xinyuan Real Estate Co., Ltd. (NYSE:XIN) is the most popular stock in this table. On the other hand Hamilton Beach Brands Holding Company (NYSE:HBB) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Great Ajax Corp (NYSE:AJX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on AJX as the stock returned 13.2% during Q3 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.