Hedge Funds Are Dumping Great Ajax Corp (AJX)

Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze Great Ajax Corp (NYSE:AJX) from the perspective of those elite funds.

Great Ajax Corp (NYSE:AJX) has experienced a decrease in enthusiasm from smart money recently. It is quite surprising that the shares of Great Ajax Corp (NYSE:AJX) followed a similar pattern, falling 12.76% throughout the third quarter. One may find a correlation between these patterns, but it is difficult to validate any connection between them. For an in-depth understanding of the hedge fund behavior, we will cover hedge funds that held positions in Great Ajax Corp (NYSE:AJX), at the end of September.

Hedge fund moves are backed by solid research and in-depth analysis. In the process of apprehending the hedge fund sentiment surrounding Great Ajax Corp (NYSE:AJX), we will compare it to with other stocks, including Marlin Business Services Corp. (NASDAQ:MRLN), Global Sources Ltd. (Bermuda) (NASDAQ:GSOL), and Cynapsus Therapeutics Inc (NASDAQ:CYNA) to get a better sense of its popularity.

According to most traders, hedge funds are assumed to be slow, old investment tools of the past. While there are more than 8000 funds trading at the moment, our researchers choose to focus on the aristocrats of this club, approximately 700 funds. These money managers have their hands on the majority of the hedge fund industry’s total asset base, and by keeping an eye on their best stock picks, Insider Monkey has brought to light a few investment strategies that have historically outstripped the market. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

With all of this in mind, we’re going to take a peek at the new action encompassing Great Ajax Corp (NYSE:AJX).

Hedge fund activity in Great Ajax Corp (NYSE:AJX)

At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a drop of 17% from one quarter earlier. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Covalent Capital Partners, managed by Robert Hockett, holds the most valuable position in Great Ajax Corp (NYSE:AJX). Covalent Capital Partners has a $11.9 million position in the stock, comprising 2.5% of its 13F portfolio. The second largest stake is held by Michael Thompson of BHR Capital, with a $8.2 million position; the fund has 1.2% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism include J. Alan Reid, Jr.’s Forward Management, Israel Englander’s Millennium Management, and Renaissance Technologies.

Seeing as Great Ajax Corp (NYSE:AJX) has witnessed a bearish sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of fund managers that decided to sell off their full holdings by the end of the third quarter. It’s worth mentioning that Charles Clough’s Clough Capital Partners sold off the biggest stake of the “upper crust” of funds tracked by Insider Monkey, valued at close to $4.1 million in stock, and Carl Tiedemann and Michael Tiedemann’s TIG Advisors was right behind this move, as the fund cut about $0.8 million worth of shares. These transactions are important to note, as aggregate hedge fund interest fell by 1 fund by the end of the third quarter.

Let’s now review 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 Marlin Business Services Corp. (NASDAQ:MRLN), Global Sources Ltd. (Bermuda) (NASDAQ:GSOL), Cynapsus Therapeutics Inc (NASDAQ:CYNA), and Senomyx Inc. (NASDAQ:SNMX). This group of stocks’ market valuations resemble Great Ajax Corp (NYSE:AJX)’s market valuation.

As you can see, these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That figure was $24 million in Great Ajax Corp (NYSE:AJX)’s case. Cynapsus Therapeutics Inc (NASDAQ:CYNA) is the most popular stock in this table. On the other hand, Global Sources Ltd. (Bermuda) (NASDAQ:GSOL) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks, Great Ajax Corp (NYSE:AJX) is even less popular than Global Sources Ltd. (Bermuda) (NASDAQ:GSOL). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case, more research is warranted.