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Hedge Funds Are Betting On Digital Realty Trust, Inc. (DLR)

In this article we will check out the progression of hedge fund sentiment towards Digital Realty Trust, Inc. (NYSE:DLR) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Digital Realty Trust, Inc. (NYSE:DLR) has seen an increase in hedge fund interest of late. 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).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross of Adage Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one as well as this tiny cannabis play. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s go over the new hedge fund action surrounding Digital Realty Trust, Inc. (NYSE:DLR).

What have hedge funds been doing with Digital Realty Trust, Inc. (NYSE:DLR)?

Heading into the second quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in DLR a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Jasper Ridge Partners held the most valuable stake in Digital Realty Trust, Inc. (NYSE:DLR), which was worth $90.6 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $41.8 million worth of shares. 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.

With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Renaissance Technologies, created the most outsized 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 following funds were also among the new DLR investors: Ira Unschuld’s Brant Point Investment Management, David Rodriguez-Fraile’s BlueMar Capital Management, and Ben Gambill’s Tiger Eye Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Digital Realty Trust, Inc. (NYSE:DLR) but similarly valued. These stocks are Eni SpA (NYSE:E), Exelon Corporation (NASDAQ:EXC), Koninklijke Philips NV (NYSE:PHG), and Westpac Banking Corporation (NYSE:WBK). All of these stocks’ market caps are similar to 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 (NASDAQ: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 8.3% in 2020 through the end of May but beat the market by 13.2 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 3.3% 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.