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Is RigNet Inc (RNET) Going To Burn These Hedge Funds ?

Abigail Fisher

We at Insider Monkey have gone over 752 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of September 30th. In this article, we look at what those funds think of RigNet Inc (NASDAQ:RNET) based on that data.

RigNet Inc (NASDAQ:RNET) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds' portfolios at the end of the third quarter of 2019. At the end of this article we will also compare RNET to other stocks including Cerecor Inc. (NASDAQ:CERC), OP Bancorp (NASDAQ:OPBK), and The Eastern Company (NASDAQ:EML) to get a better sense of its popularity.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

[caption id="attachment_673876" align="aligncenter" width="473"] John Overdeck of Two Sigma Advisors[/caption]

John Overdeck of Two Sigma

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a peek at the latest hedge fund action surrounding RigNet Inc (NASDAQ:RNET).

How are hedge funds trading RigNet Inc (NASDAQ:RNET)?

Heading into the fourth quarter of 2019, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RNET over the last 17 quarters. With hedge funds' capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

RNET_nov2019

Among these funds, Renaissance Technologies held the most valuable stake in RigNet Inc (NASDAQ:RNET), which was worth $4.2 million at the end of the third quarter. On the second spot was G2 Investment Partners Management which amassed $2.8 million worth of shares. Two Sigma Advisors was 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 G2 Investment Partners Management allocated the biggest weight to RigNet Inc (NASDAQ:RNET), around 0.8% of its portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.0035 percent of its 13F equity portfolio to RNET.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.

Let's check out hedge fund activity in other stocks similar to RigNet Inc (NASDAQ:RNET). We will take a look at Cerecor Inc. (NASDAQ:CERC), OP Bancorp (NASDAQ:OPBK), The Eastern Company (NASDAQ:EML), and PC Tel Inc (NASDAQ:PCTI). This group of stocks' market values match RNET's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CERC,4,75640,1 OPBK,4,16591,0 EML,6,44010,0 PCTI,14,30470,7 Average,7,41678,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $7 million in RNET's case. PC Tel Inc (NASDAQ:PCTI) is the most popular stock in this table. On the other hand Cerecor Inc. (NASDAQ:CERC) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks RigNet Inc (NASDAQ:RNET) is even less popular than CERC. Hedge funds dodged a bullet by taking a bearish stance towards RNET. Our calculations showed that the top 20 most popular hedge fund stocks returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately RNET wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); RNET investors were disappointed as the stock returned -25.5% during the fourth quarter (through 11/22) 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.

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