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 Ethan Allen Interiors Inc. (NYSE:ETH) from the perspective of those elite funds.
Ethan Allen Interiors Inc. (NYSE:ETH) investors should be aware of a decrease in enthusiasm from smart money recently. ETH was in 12 hedge funds’ portfolios at the end of September. There were 13 hedge funds in our database with ETH positions at the end of the previous quarter. Our calculations also showed that ETH isn’t among the 30 most popular stocks among hedge funds.
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 18 percentage points since May 2014 through December 3, 2018 (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.
We’re going to review the recent hedge fund action surrounding Ethan Allen Interiors Inc. (NYSE:ETH).
What does the smart money think about Ethan Allen Interiors Inc. (NYSE:ETH)?
Heading into the fourth quarter of 2018, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards ETH over the last 13 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Ethan Allen Interiors Inc. (NYSE:ETH) was held by Royce & Associates, which reported holding $23.3 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $9.6 million position. Other investors bullish on the company included GMT Capital, Renaissance Technologies, and D E Shaw.
Since Ethan Allen Interiors Inc. (NYSE:ETH) has experienced declining sentiment from the smart money, logic holds that there is a sect of hedge funds that decided to sell off their full holdings heading into Q3. At the top of the heap, Michael Platt and William Reeves’s BlueCrest Capital Mgmt. cut the biggest investment of the 700 funds watched by Insider Monkey, valued at about $0.6 million in stock, and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital was right behind this move, as the fund sold off about $0 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 1 funds heading into Q3.
Let’s now review hedge fund activity in other stocks similar to Ethan Allen Interiors Inc. (NYSE:ETH). We will take a look at Hemisphere Media Group Inc (NASDAQ:HMTV), Altisource Portfolio Solutions S.A. (NASDAQ:ASPS), Western Asset High Income Fund II Inc. (NYSE:HIX), and American Vanguard Corp. (NYSE:AVD). This group of stocks’ market valuations resemble ETH’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HMTV | 8 | 50459 | 0 |
| ASPS | 12 | 71906 | 3 |
| HIX | 2 | 40181 | -1 |
| AVD | 7 | 29762 | -3 |
| Average | 7.25 | 48077 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $59 million in ETH’s case. Altisource Portfolio Solutions S.A. (NASDAQ:ASPS) is the most popular stock in this table. On the other hand Western Asset High Income Fund II Inc. (NYSE:HIX) is the least popular one with only 2 bullish hedge fund positions. Ethan Allen Interiors Inc. (NYSE:ETH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard ASPS might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
