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Hedge Funds Keep Buying Dynatrace, Inc. (DT)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Dynatrace, Inc. (NYSE:DT) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Dynatrace, Inc. (NYSE:DT) was in 41 hedge funds’ portfolios at the end of June. The all time high for this statistics is 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. DT investors should pay attention to an increase in activity from the world’s largest hedge funds in recent months. There were 35 hedge funds in our database with DT holdings at the end of March. Our calculations also showed that DT isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

MOORE GLOBAL INVESTMENTS

Louis Bacon Moore of Moore Capital

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 precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now let’s take a look at the latest hedge fund action encompassing Dynatrace, Inc. (NYSE:DT).

What have hedge funds been doing with Dynatrace, Inc. (NYSE:DT)?

At Q2’s end, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% 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. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Among these funds, Coatue Management held the most valuable stake in Dynatrace, Inc. (NYSE:DT), which was worth $268 million at the end of the third quarter. On the second spot was Holocene Advisors which amassed $109.5 million worth of shares. Jericho Capital Asset Management, HMI Capital, 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 Shannon River Fund Management allocated the biggest weight to Dynatrace, Inc. (NYSE:DT), around 8.07% of its 13F portfolio. Cota Capital is also relatively very bullish on the stock, earmarking 7.33 percent of its 13F equity portfolio to DT.

As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Holocene Advisors, managed by Brandon Haley, assembled the most outsized position in Dynatrace, Inc. (NYSE:DT). Holocene Advisors had $109.5 million invested in the company at the end of the quarter. Josh Resnick’s Jericho Capital Asset Management also initiated a $101.7 million position during the quarter. The other funds with new positions in the stock are Louis Bacon’s Moore Global Investments, Jeffrey Talpins’s Element Capital Management, and Joe DiMenna’s ZWEIG DIMENNA 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 Teledyne Technologies Incorporated (NYSE:TDY), Black Knight, Inc. (NYSE:BKI), Halliburton Company (NYSE:HAL), Equity Lifestyle Properties, Inc. (NYSE:ELS), Principal Financial Group Inc (NASDAQ:PFG), Neurocrine Biosciences, Inc. (NASDAQ:NBIX), and Waters Corporation (NYSE:WAT). This group of stocks’ market valuations are closest to DT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TDY 34 445927 13
BKI 44 595730 12
HAL 30 717639 -2
ELS 31 442219 0
PFG 31 188356 4
NBIX 38 1195826 0
WAT 38 615214 13
Average 35.1 600130 5.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.1 hedge funds with bullish positions and the average amount invested in these stocks was $600 million. That figure was $1061 million in DT’s case. Black Knight, Inc. (NYSE:BKI) is the most popular stock in this table. On the other hand Halliburton Company (NYSE:HAL) is the least popular one with only 30 bullish hedge fund positions. Dynatrace, Inc. (NYSE:DT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DT is 79.3. 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. 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately DT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on DT were disappointed as the stock returned 8.9% 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.