Were Hedge Funds Right About Piling Into Datadog, Inc. (DDOG)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtDatadog, Inc. (NASDAQ:DDOG) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Datadog, Inc. (NASDAQ:DDOG) the right pick for your portfolio? The best stock pickers were turning bullish. The number of bullish hedge fund bets improved by 12 in recent months. Our calculations also showed that DDOG 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.

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.

Glen Kacher of Light Street Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to go over the key hedge fund action encompassing Datadog, Inc. (NASDAQ:DDOG).

What does smart money think about Datadog, Inc. (NASDAQ:DDOG)?

At Q1’s end, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 38% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards DDOG over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Datadog, Inc. (NASDAQ:DDOG) was held by Whale Rock Capital Management, which reported holding $233.1 million worth of stock at the end of September. It was followed by Tiger Global Management LLC with a $132.4 million position. Other investors bullish on the company included Coatue Management, Holocene Advisors, and Point72 Asset Management. In terms of the portfolio weights assigned to each position Stepstone Group allocated the biggest weight to Datadog, Inc. (NASDAQ:DDOG), around 75.43% of its 13F portfolio. Berylson Capital Partners is also relatively very bullish on the stock, earmarking 5.69 percent of its 13F equity portfolio to DDOG.

As one would reasonably expect, specific money managers have been driving this bullishness. Light Street Capital, managed by Glen Kacher, initiated the largest position in Datadog, Inc. (NASDAQ:DDOG). Light Street Capital had $48 million invested in the company at the end of the quarter. Daniel Patrick Gibson’s Sylebra Capital Management also initiated a $23.7 million position during the quarter. The following funds were also among the new DDOG investors: Renaissance Technologies, Jose Fernandez’s Stepstone Group, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s check out hedge fund activity in other stocks similar to Datadog, Inc. (NASDAQ:DDOG). We will take a look at XP Inc. (NASDAQ:XP), FMC Corporation (NYSE:FMC), Fifth Third Bancorp (NASDAQ:FITB), and Brookfield Infrastructure Partners L.P. (NYSE:BIP). This group of stocks’ market valuations are similar to DDOG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
XP 13 165830 -15
FMC 39 560040 4
FITB 30 384097 -11
BIP 14 55630 3
Average 24 291399 -4.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $291 million. That figure was $861 million in DDOG’s case. FMC Corporation (NYSE:FMC) is the most popular stock in this table. On the other hand XP Inc. (NASDAQ:XP) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Datadog, Inc. (NASDAQ:DDOG) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on DDOG as the stock returned 141.7% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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