We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like RealNetworks Inc (NASDAQ:RNWK).
Is RealNetworks Inc (NASDAQ:RNWK) a bargain? The best stock pickers are reducing their bets on the stock. The number of long hedge fund positions were trimmed by 1 lately. Our calculations also showed that RNWK isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). RNWK was in 6 hedge funds’ portfolios at the end of the third quarter of 2019. There were 7 hedge funds in our database with RNWK positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Eric Singer of VIEX Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to review the fresh hedge fund action surrounding RealNetworks Inc (NASDAQ:RNWK).
What have hedge funds been doing with RealNetworks Inc (NASDAQ:RNWK)?
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RNWK over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Among these funds, Ariel Investments held the most valuable stake in RealNetworks Inc (NASDAQ:RNWK), which was worth $8.3 million at the end of the third quarter. On the second spot was VIEX Capital Advisors which amassed $5.4 million worth of shares. Renaissance Technologies, Ancora Advisors, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position VIEX Capital Advisors allocated the biggest weight to RealNetworks Inc (NASDAQ:RNWK), around 3.19% of its 13F portfolio. Ariel Investments is also relatively very bullish on the stock, designating 0.11 percent of its 13F equity portfolio to RNWK.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified RNWK as a viable investment and initiated a position in the stock.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as RealNetworks Inc (NASDAQ:RNWK) but similarly valued. We will take a look at Cidara Therapeutics Inc (NASDAQ:CDTX), Kezar Life Sciences, Inc. (NASDAQ:KZR), ARC Document Solutions Inc (NYSE:ARC), and Crown Crafts, Inc. (NASDAQ:CRWS). This group of stocks’ market caps are closest to RNWK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CDTX | 6 | 11696 | -3 |
| KZR | 8 | 5585 | -2 |
| ARC | 8 | 8213 | 2 |
| CRWS | 8 | 7282 | 3 |
| Average | 7.5 | 8194 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.5 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $17 million in RNWK’s case. Kezar Life Sciences, Inc. (NASDAQ:KZR) is the most popular stock in this table. On the other hand Cidara Therapeutics Inc (NASDAQ:CDTX) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks RealNetworks Inc (NASDAQ:RNWK) is even less popular than CDTX. Hedge funds dodged a bullet by taking a bearish stance towards RNWK. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately RNWK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); RNWK investors were disappointed as the stock returned -13.9% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
