Should I Avoid RealNetworks Inc (RNWK)?

After several tireless days we have finished crunching the numbers from nearly 817 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of September 30th. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards RealNetworks Inc (NASDAQ:RNWK).

RealNetworks Inc (NASDAQ:RNWK) has seen a decrease in enthusiasm from smart money of late. RealNetworks Inc (NASDAQ:RNWK) was in 4 hedge funds’ portfolios at the end of September. The all time high for this statistics is 11. There were 5 hedge funds in our database with RNWK positions at the end of the second quarter. 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 for a quick look at the top 5 stocks).

Video: 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 monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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.

John Rogers Ariel Investments

John Rogers of Ariel Investments

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let’s take a glance at the fresh hedge fund action regarding 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 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the previous quarter. By comparison, 6 hedge funds held shares or bullish call options in RNWK a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Ariel Investments, managed by John W. Rogers, holds the biggest position in RealNetworks Inc (NASDAQ:RNWK). Ariel Investments has a $4.3 million position in the stock, comprising 0.1% of its 13F portfolio. On Ariel Investments’s of Renaissance Technologies, with a $2.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish consist of Chuck Royce’s Royce & Associates, Israel Englander’s Millennium Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Ariel Investments allocated the biggest weight to RealNetworks Inc (NASDAQ:RNWK), around 0.06% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.0028 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 check out hedge fund activity in other stocks similar to RealNetworks Inc (NASDAQ:RNWK). We will take a look at SRAX, Inc. (NASDAQ:SRAX), The LGL Group, Inc. (NYSE:LGL), CBM Bancorp, Inc. (NASDAQ:CBMB), MIND C.T.I. Ltd. (NASDAQ:MNDO), Ring Energy Inc (NYSE:REI), Perma-Pipe International Holdings, Inc. (NASDAQ:PPIH), and Delcath Systems, Inc. (NASDAQ:DCTH). All of these stocks’ market caps are similar to RNWK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SRAX 2 159 1
LGL 4 7816 -1
CBMB 3 1015 0
MNDO 1 152 0
REI 7 1621 -2
PPIH 2 3347 0
DCTH 2 1333 -1
Average 3 2206 -0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 3 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $7 million in RNWK’s case. Ring Energy Inc (NYSE:REI) is the most popular stock in this table. On the other hand MIND C.T.I. Ltd. (NASDAQ:MNDO) is the least popular one with only 1 bullish hedge fund positions. RealNetworks Inc (NASDAQ:RNWK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RNWK is 39.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. Hedge funds were also right about betting on RNWK as the stock returned 28.7% since the end of Q3 (through 11/27) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.