Is Digital Realty Trust, Inc. (DLR) A Good Stock To Buy?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Digital Realty Trust, Inc. (NYSE:DLR)? The smart money sentiment can provide an answer to this question.

Is Digital Realty Trust, Inc. (NYSE:DLR) a buy, sell, or hold? Prominent investors were turning bullish. The number of bullish hedge fund bets moved up by 8 recently. Digital Realty Trust, Inc. (NYSE:DLR) was in 30 hedge funds’ portfolios at the end of June. The all time high for this statistic is 34. Our calculations also showed that DLR isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Phill Gross Adage Capital Phillip Gross

Phillip Gross of Adage Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s take a peek at the new hedge fund action encompassing Digital Realty Trust, Inc. (NYSE:DLR).

Do Hedge Funds Think DLR Is A Good Stock To Buy Now?

At second quarter’s end, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 36% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in DLR over the last 24 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Jasper Ridge Partners, managed by Mark Wolfson and Jamie Alexander, holds the number one position in Digital Realty Trust, Inc. (NYSE:DLR). Jasper Ridge Partners has a $98.2 million position in the stock, comprising 4.7% of its 13F portfolio. On Jasper Ridge Partners’s heels is Zimmer Partners, led by Stuart J. Zimmer, holding a $88.4 million position; 1.2% of its 13F portfolio is allocated to the company. Some other peers that hold long positions comprise Ken Griffin’s Citadel Investment Group, Phill Gross and Robert Atchinson’s Adage Capital Management and Israel Englander’s Millennium Management. 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 4.71% of its 13F portfolio. Beech Hill Partners is also relatively very bullish on the stock, designating 1.62 percent of its 13F equity portfolio to DLR.

Now, specific money managers were breaking ground themselves. Schonfeld Strategic Advisors, managed by Ryan Tolkin (CIO), initiated the largest position in Digital Realty Trust, Inc. (NYSE:DLR). Schonfeld Strategic Advisors had $5.1 million invested in the company at the end of the quarter. Greg Poole’s Echo Street Capital Management also initiated a $2.9 million position during the quarter. The other funds with brand new DLR positions are Jinghua Yan’s TwinBeech Capital, Greg Eisner’s Engineers Gate Manager, and Donald Sussman’s Paloma Partners.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Digital Realty Trust, Inc. (NYSE:DLR) but similarly valued. We will take a look at American Electric Power Company, Inc. (NASDAQ:AEP), Carrier Global Corporation (NYSE:CARR), Synopsys, Inc. (NASDAQ:SNPS), Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA), DexCom, Inc. (NASDAQ:DXCM), and Kinder Morgan Inc (NYSE:KMI). 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
AEP 29 726241 -3
CARR 46 1853633 -5
SNPS 41 2057258 7
ERIC 19 228837 0
BBVA 9 274525 2
DXCM 49 1634192 -7
KMI 38 1032764 0
Average 33 1115350 -0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $1115 million. That figure was $425 million in DLR’s case. DexCom, Inc. (NASDAQ:DXCM) is the most popular stock in this table. On the other hand Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA) is the least popular one with only 9 bullish hedge fund positions. Digital Realty Trust, Inc. (NYSE:DLR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DLR is 62.7. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and surpassed the market again by 4.5 percentage points. Unfortunately DLR wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); DLR investors were disappointed as the stock returned -1.2% since the end of June (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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