Ethan Allen Interiors Inc. (ETH): Hedge Funds and Insiders Are Bearish, What Should You Do?

Is Ethan Allen Interiors Inc. (NYSE:ETH) a bargain? The smart money is selling. The number of long hedge fund bets decreased by 5 lately.

To most market participants, hedge funds are viewed as worthless, outdated investment tools of years past. While there are over 8000 funds in operation at the moment, were at Insider Monkey hone in on the upper echelon of this club, about 450 funds. It is estimated that this group oversees the lion’s share of all hedge funds’ total asset base, and by keeping an eye on their highest performing equity investments, we have figured out a few investment strategies that have historically outstripped the broader indices. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have trumped the S&P 500 index by 23.3 percentage points in 8 months (check out a sample of our picks).

Just as key, positive insider trading sentiment is a second way to break down the marketplace. As the old adage goes: there are a variety of reasons for an executive to sell shares of his or her company, but only one, very simple reason why they would initiate a purchase. Various academic studies have demonstrated the valuable potential of this strategy if investors understand where to look (learn more here).

Keeping this in mind, let’s take a glance at the recent action regarding Ethan Allen Interiors Inc. (NYSE:ETH).

Hedge fund activity in Ethan Allen Interiors Inc. (NYSE:ETH)

Heading into Q2, a total of 8 of the hedge funds we track held long positions in this stock, a change of -38% from the previous quarter. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes meaningfully.

When looking at the hedgies we track, Royce & Associates, managed by Chuck Royce, holds the largest position in Ethan Allen Interiors Inc. (NYSE:ETH). Royce & Associates has a $122.5 million position in the stock, comprising 0.4% of its 13F portfolio. Sitting at the No. 2 spot is Crispin Odey of Odey Asset Management Group, with a $59.9 million position; the fund has 2.1% of its 13F portfolio invested in the stock. Other hedge funds that are bullish include Gilchrist Berg’s Water Street Capital, Andrew Sandler’s Sandler Capital Management and Jim Simons’s Renaissance Technologies.

Because Ethan Allen Interiors Inc. (NYSE:ETH) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there were a few fund managers that elected to cut their entire stakes in Q1. Intriguingly, Jeffrey Vinik’s Vinik Asset Management dropped the biggest position of the “upper crust” of funds we track, comprising an estimated $9.2 million in stock., and Israel Englander of Millennium Management was right behind this move, as the fund dumped about $2.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 5 funds in Q1.

How are insiders trading Ethan Allen Interiors Inc. (NYSE:ETH)?

Insider trading activity, especially when it’s bullish, is particularly usable when the company in question has seen transactions within the past 180 days. Over the latest 180-day time period, Ethan Allen Interiors Inc. (NYSE:ETH) has seen zero unique insiders buying, and 15 insider sales (see the details of insider trades here).

Let’s check out hedge fund and insider activity in other stocks similar to Ethan Allen Interiors Inc. (NYSE:ETH). These stocks are Tempur-Pedic International Inc. (NYSE:TPX), American Woodmark Corporation (NASDAQ:AMWD), Mattress Firm Holding Corp (NASDAQ:MFRM), Select Comfort Corp. (NASDAQ:SCSS), and La-Z-Boy Incorporated (NYSE:LZB). This group of stocks are the members of the home furnishings & fixtures industry and their market caps are similar to ETH’s market cap.