Is Ethan Allen Interiors Inc. (ETH) Going to Burn These Hedge Funds?

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 follow the hedge fund activity in the small-cap space.

Ethan Allen Interiors Inc. (NYSE:ETH) was in 13 hedge funds’ portfolios at the end of September. ETH investors should be aware of a decrease in support from the world’s most successful money managers recently. There were 16 hedge funds in our database with ETH holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Teekay Offshore Partners L.P. (NYSE:TOO), Sun Hydraulics Corporation (NASDAQ:SNHY), and Solar Capital Ltd. (NASDAQ:SLRC) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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

Heading into the fourth quarter of 2016, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, down by 19% from the second quarter of 2016. The graph below displays the number of hedge funds with bullish position in ETH over the last 5 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.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chuck Royce’s Royce & Associates has the largest position in Ethan Allen Interiors Inc. (NYSE:ETH), worth close to $74.8 million. The second largest stake is held by Paul Hondros of AlphaOne Capital Partners, with a $4.2 million position; 1.4% of its 13F portfolio is allocated to the stock. Other peers that hold long positions contain D. E. Shaw’s D E Shaw, one of the largest hedge funds in the world, Ken Griffin’s Citadel Investment Group and Ken Fisher’s Fisher Asset Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We already know that not all hedge funds are bullish on the stock and some hedge funds actually dropped their positions entirely. It’s worth mentioning that Peter Algert and Kevin Coldiron’s Algert Coldiron Investors dropped the largest investment of the “upper crust” of funds monitored by Insider Monkey, comprising about $0.9 million in stock, and James Dondero’s Highland Capital Management was right behind this move, as the fund dropped about $0.2 million worth of shares.

Let’s go over hedge fund activity in other stocks similar to Ethan Allen Interiors Inc. (NYSE:ETH). We will take a look at Teekay Offshore Partners L.P. (NYSE:TOO), Sun Hydraulics Corporation (NASDAQ:SNHY), Solar Capital Ltd. (NASDAQ:SLRC), and Apollo Group Inc (NASDAQ:APOL). All of these stocks’ market caps match ETH’s market cap.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $96 million. That figure was $100 million in ETH’s case. Apollo Group Inc (NASDAQ:APOL) is the most popular stock in this table. On the other hand Sun Hydraulics Corporation (NASDAQ:SNHY) is the least popular one with only 5 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 APOL might be a better candidate to consider taking a long position in.

Disclosure: None