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Did Hedge Funds Make The Right Call On Digital Realty Trust, Inc. (DLR) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Digital Realty Trust, Inc. (NYSE:DLR) and determine whether hedge funds skillfully traded this stock.

Is Digital Realty Trust, Inc. (NYSE:DLR) a good investment today? Prominent investors were turning bullish. The number of long hedge fund bets increased by 3 in recent months. Our calculations also showed that DLR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). DLR was in 29 hedge funds’ portfolios at the end of March. There were 26 hedge funds in our database with DLR positions at the end of the previous quarter.

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.

Frank Brosens Taconic Capital

Frank Brosens of Taconic Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now let’s review the new hedge fund action regarding Digital Realty Trust, Inc. (NYSE:DLR).

How have hedgies been trading Digital Realty Trust, Inc. (NYSE:DLR)?

At the end of the first quarter, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from one quarter earlier. By comparison, 16 hedge funds held shares or bullish call options in DLR a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is DLR A Good Stock To Buy?

More specifically, Jasper Ridge Partners was the largest shareholder of Digital Realty Trust, Inc. (NYSE:DLR), with a stake worth $90.6 million reported as of the end of September. Trailing Jasper Ridge Partners was Adage Capital Management, which amassed a stake valued at $41.8 million. Renaissance Technologies, Osterweis Capital Management, and AQR Capital 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 Jasper Ridge Partners allocated the biggest weight to Digital Realty Trust, Inc. (NYSE:DLR), around 6.77% of its 13F portfolio. Osterweis Capital Management is also relatively very bullish on the stock, designating 3.32 percent of its 13F equity portfolio to DLR.

As aggregate interest increased, key money managers have jumped into Digital Realty Trust, Inc. (NYSE:DLR) headfirst. Renaissance Technologies,  established the most valuable position in Digital Realty Trust, Inc. (NYSE:DLR). Renaissance Technologies had $40.9 million invested in the company at the end of the quarter. Alec Litowitz and Ross Laser’s Magnetar Capital also made a $18.2 million investment in the stock during the quarter. The other funds with brand new DLR positions are Ira Unschuld’s Brant Point Investment Management, David Rodriguez-Fraile’s BlueMar Capital Management, and Ben Gambill’s Tiger Eye Capital.

Let’s check out hedge fund activity in other stocks similar to Digital Realty Trust, Inc. (NYSE:DLR). We will take a look at Eni SpA (NYSE:E), Exelon Corporation (NYSE:EXC), Koninklijke Philips NV (NYSE:PHG), and Westpac Banking Corporation (NYSE:WBK). This group of stocks’ market caps match DLR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
E 5 35398 -1
EXC 33 1129634 -3
PHG 11 138924 2
WBK 9 32340 2
Average 14.5 334074 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $334 million. That figure was $303 million in DLR’s case. Exelon Corporation (NYSE:EXC) is the most popular stock in this table. On the other hand Eni SpA (NYSE:E) is the least popular one with only 5 bullish hedge fund positions. Digital Realty Trust, Inc. (NYSE:DLR) 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately DLR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on DLR were disappointed as the stock returned 3.2% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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