Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.
Ethan Allen Interiors Inc. (NYSE:ETH) was in 15 hedge funds’ portfolios at the end of December. ETH investors should be aware of an increase in support from the world’s most elite money managers of late. There were 12 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We’re going to take a gander at the new hedge fund action regarding Ethan Allen Interiors Inc. (NYSE:ETH).
What have hedge funds been doing with Ethan Allen Interiors Inc. (NYSE:ETH)?
At the end of the fourth quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the second quarter of 2018. By comparison, 13 hedge funds held shares or bullish call options in ETH a year ago. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing 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 $15 million worth of stock at the end of December. It was followed by Royce & Associates with a $13 million position. Other investors bullish on the company included Citadel Investment Group, Arrowstreet Capital, and Millennium Management.
As aggregate interest increased, key hedge funds were leading the bulls’ herd. Gotham Asset Management, managed by Joel Greenblatt, established the largest position in Ethan Allen Interiors Inc. (NYSE:ETH). Gotham Asset Management had $0.7 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also made a $0.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Michael Platt and William Reeves’s BlueCrest Capital Mgmt., Hoon Kim’s Quantinno Capital, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s now review 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 Luxfer Holdings PLC (NYSE:LXFR), Insteel Industries Inc (NASDAQ:IIIN), MYR Group Inc (NASDAQ:MYRG), and HCI Group, Inc. (NYSE:HCI). This group of stocks’ market caps are similar to ETH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LXFR | 12 | 78785 | 4 |
| IIIN | 12 | 58512 | -4 |
| MYRG | 12 | 17972 | 1 |
| HCI | 9 | 29871 | 2 |
| Average | 11.25 | 46285 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $59 million in ETH’s case. Luxfer Holdings PLC (NYSE:LXFR) is the most popular stock in this table. On the other hand HCI Group, Inc. (NYSE:HCI) is the least popular one with only 9 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately ETH wasn’t nearly as popular as these 15 stock and hedge funds that were betting on ETH were disappointed as the stock returned 13% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
