We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Dynatrace, Inc. (NYSE:DT) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Dynatrace, Inc. (NYSE:DT) was in 25 hedge funds’ portfolios at the end of the fourth quarter of 2019. DT has experienced an increase in activity from the world’s largest hedge funds recently. There were 20 hedge funds in our database with DT holdings at the end of the previous quarter. Our calculations also showed that DT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jeffrey Talpins of Element Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a gander at the new hedge fund action regarding Dynatrace, Inc. (NYSE:DT).
What does smart money think about Dynatrace, Inc. (NYSE:DT)?
At Q4’s end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from the previous quarter. On the other hand, there were a total of 0 hedge funds with a bullish position in DT a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Coatue Management was the largest shareholder of Dynatrace, Inc. (NYSE:DT), with a stake worth $253.9 million reported as of the end of September. Trailing Coatue Management was Citadel Investment Group, which amassed a stake valued at $75.7 million. Shannon River Fund Management, Element Capital Management, and Light Street Capital 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 Element Capital Management allocated the biggest weight to Dynatrace, Inc. (NYSE:DT), around 9.63% of its 13F portfolio. Shannon River Fund Management is also relatively very bullish on the stock, designating 7.62 percent of its 13F equity portfolio to DT.
Now, key money managers have jumped into Dynatrace, Inc. (NYSE:DT) headfirst. Honeycomb Asset Management, managed by David Fiszel, initiated the biggest position in Dynatrace, Inc. (NYSE:DT). Honeycomb Asset Management had $24.7 million invested in the company at the end of the quarter. Jonathan Barrett and Paul Segal’s Luminus Management also initiated a $13.4 million position during the quarter. The following funds were also among the new DT investors: Steve Cohen’s Point72 Asset Management, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Philip Hempleman’s Ardsley Partners.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Dynatrace, Inc. (NYSE:DT) but similarly valued. These stocks are East West Bancorp, Inc. (NASDAQ:EWBC), Owens Corning (NYSE:OC), BRF S.A. (NYSE:BRFS), and CAE, Inc. (NYSE:CAE). This group of stocks’ market caps match DT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EWBC | 29 | 520620 | -1 |
| OC | 47 | 1080101 | 4 |
| BRFS | 14 | 119708 | 0 |
| CAE | 10 | 138012 | -1 |
| Average | 25 | 464610 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $465 million. That figure was $615 million in DT’s case. Owens Corning (NYSE:OC) is the most popular stock in this table. On the other hand CAE, Inc. (NYSE:CAE) is the least popular one with only 10 bullish hedge fund positions. Dynatrace, Inc. (NYSE:DT) is not the least popular stock in this group but hedge fund interest is still below average. 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 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on DT, though not to the same extent, as the stock returned -23.4% during the same time period and outperformed the market.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
