Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Ethan Allen Interiors Inc. (NYSE:ETH).
Ethan Allen Interiors Inc. (NYSE:ETH) was in 17 hedge funds’ portfolios at the end of the first quarter of 2019. ETH investors should be aware of an increase in activity from the world’s largest hedge funds recently. There were 15 hedge funds in our database with ETH holdings 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 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.
We’re going to review the recent hedge fund action regarding Ethan Allen Interiors Inc. (NYSE:ETH).
How have hedgies been trading Ethan Allen Interiors Inc. (NYSE:ETH)?
At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ETH over the last 15 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
The largest stake in Ethan Allen Interiors Inc. (NYSE:ETH) was held by Renaissance Technologies, which reported holding $17.4 million worth of stock at the end of March. It was followed by Royce & Associates with a $14.7 million position. Other investors bullish on the company included Arrowstreet Capital, Citadel Investment Group, and Maverick Capital.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Maverick Capital, managed by Lee Ainslie, initiated the biggest position in Ethan Allen Interiors Inc. (NYSE:ETH). Maverick Capital had $4.5 million invested in the company at the end of the quarter. Brian Gustavson and Andrew Haley’s 1060 Capital Management also made a $1.4 million investment in the stock during the quarter. The other funds with brand new ETH positions are Cliff Asness’s AQR Capital Management, Ken Griffin’s Citadel Investment Group, and Bruce Kovner’s Caxton Associates LP.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Ethan Allen Interiors Inc. (NYSE:ETH) but similarly valued. These stocks are Donnelley Financial Solutions, Inc. (NYSE:DFIN), Just Energy Group, Inc. (NYSE:JE), Independent Bank Corporation (NASDAQ:IBCP), and Peapack-Gladstone Financial Corp (NASDAQ:PGC). This group of stocks’ market caps match ETH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DFIN | 14 | 52851 | -5 |
| JE | 10 | 20148 | 1 |
| IBCP | 11 | 47151 | 0 |
| PGC | 16 | 73656 | 1 |
| Average | 12.75 | 48452 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $48 million. That figure was $68 million in ETH’s case. Peapack-Gladstone Financial Corp (NASDAQ:PGC) is the most popular stock in this table. On the other hand Just Energy Group, Inc. (NYSE:JE) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Ethan Allen Interiors Inc. (NYSE:ETH) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on ETH as the stock returned 14.7% during the same period 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.
