Hedge Funds Aren’t Done Buying Dynatrace, Inc. (DT)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. In this article we are going to take a look at smart money sentiment towards Dynatrace, Inc. (NYSE:DT).

Dynatrace, Inc. (NYSE:DT) was in 35 hedge funds’ portfolios at the end of the first quarter of 2020. DT investors should pay attention to an increase in enthusiasm from smart money lately. There were 25 hedge funds in our database with DT positions 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 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.

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 51 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Philippe Laffont of Coatue 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. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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. With all of this in mind we’re going to take a peek at the latest hedge fund action encompassing Dynatrace, Inc. (NYSE:DT).

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

At the end of the first quarter, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 40% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards DT 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.

More specifically, Coatue Management was the largest shareholder of Dynatrace, Inc. (NYSE:DT), with a stake worth $273.7 million reported as of the end of September. Trailing Coatue Management was HMI Capital, which amassed a stake valued at $97.3 million. Point72 Asset Management, Light Street Capital, and Citadel Investment Group 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 Cota Capital allocated the biggest weight to Dynatrace, Inc. (NYSE:DT), around 7.81% of its 13F portfolio. HMI Capital is also relatively very bullish on the stock, setting aside 6.45 percent of its 13F equity portfolio to DT.

Now, key hedge funds were leading the bulls’ herd. HMI Capital, managed by Mick Hellman, assembled the biggest position in Dynatrace, Inc. (NYSE:DT). HMI Capital had $97.3 million invested in the company at the end of the quarter. Josh Donfeld and David Rogers’s Castle Hook Partners also made a $23.8 million investment in the stock during the quarter. The other funds with brand new DT positions are Bobby Yazdani and Babak Poushanchi’s Cota Capital, Gavin Baker’s Atreides Management, and Israel Englander’s Millennium Management.

Let’s now review hedge fund activity in other stocks similar to Dynatrace, Inc. (NYSE:DT). These stocks are Dr. Reddy’s Laboratories Limited (NYSE:RDY), Darden Restaurants, Inc. (NYSE:DRI), RenaissanceRe Holdings Ltd. (NYSE:RNR), and Ionis Pharmaceuticals, Inc. (NASDAQ:IONS). This group of stocks’ market caps resemble DT’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $503 million. That figure was $726 million in DT’s case. Darden Restaurants, Inc. (NYSE:DRI) is the most popular stock in this table. On the other hand Dr. Reddy’s Laboratories Limited (NYSE:RDY) is the least popular one with only 11 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 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 still beat the market by 13.2 percentage points. Hedge funds were also right about betting on DT as the stock returned 61.4% in Q2 (through the end of May) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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