Baron Funds, an investment management company, released its “Baron Real Estate Fund” second quarter 2023 investor letter. A copy of the same can be downloaded here. In the first half of 2023, the fund rose 15.00% (Institutional Shares) compared to a 4.78% return for the MSCI US REIT Index (the “REIT Index”) and a 12.11% return for the MSCI USA IMI Extended Real Estate Index (the “MSCI Real Estate Index”). The fund rose 7.41%, modestly outperforming the indexes in the second quarter, which returned 2.34% and 7.04%, respectively, in the same period. In addition, please check the fund’s top five holdings to know its best picks in 2023.
Baron Real Estate Fund highlighted stocks like Digital Realty Trust, Inc. (NYSE:DLR) in the second quarter 2023 investor letter. Digital Realty Trust, Inc. (NYSE:DLR) is an enterprise and service provider that delivers the full spectrum of data center, colocation, and interconnection solutions. On July 25, 2023, Digital Realty Trust, Inc. (NYSE:DLR) stock closed at $120.62 per share. One-month return of Digital Realty Trust, Inc. (NYSE:DLR) was 10.64%, and its shares lost 5.40% of their value over the last 52 weeks. Digital Realty Trust, Inc. (NYSE:DLR) has a market capitalization of $35.142 billion.
Baron Real Estate Fund made the following comment about Digital Realty Trust, Inc. (NYSE:DLR) in its second quarter 2023 investor letter:
“We recently increased the Fund’s exposure to data center REITs by acquiring additional shares in Equinix, Inc. and re-initiating a position in Digital Realty Trust, Inc. (NYSE:DLR).
Data center landlords such as Equinix and Digital Realty are benefiting from record low vacancy, demand outpacing supply, more constrained power availability, and rising rental rates. Several secular demand vectors, which are currently broadening, are contributing to robust fundamentals for data center space globally. They include the outsourcing of information technology infrastructure, increased cloud computing adoption, the ongoing growth in mobile data and internet traffic, and artificial intelligence as a new wave of data center demand. Put simply, each year data continues to grow exponentially, and all of this data needs to be processed, transmitted, and stored – supporting increased demand for data center space. In addition, while it is still early innings, we believe artificial intelligence could not only provide a source of incremental demand but also further accelerate existing secular trends by driving increased prioritization and additional investment in digital transformation among enterprises.
We recently spent time with the management teams at both Equinix and Digital Realty and are optimistic about their prospects. We believe Equinix, the premier global operator of network-dense, carrier-neutral colocation data centers, is well positioned to grow its cash flow per share by more than 10% annually for the next few years.
Digital Realty is a global data center operator with 290 data centers across North America, EMEA, APAC, and LATAM. Over the last few years, the company has been undergoing a business transformation, which accelerated after its acquisition of Interxion in March 2020, a pure-play European network-dense data center operator. The company has been shedding non-core slower-growth assets, investing and expanding in Europe, growing its retail colocation business, improving its balance sheet, and adding operational expertise by supplementing new management leadership. We have spent a significant amount of time with CEO Andy Power over the years and believe the investments the company has made are on the cusp of bearing fruit and will pay dividends for years to come. In addition, we believe the fundamentals in its core business are at an inflection point with robust demand/bookings, pricing power, hyperscale cloud players outsourcing a higher percentage of their digital infrastructure needs, and limited competitive capacity. We believe these factors will lead to growth in the core business in 2023 and are optimistic about the long-term prospects for the company.”
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Digital Realty Trust, Inc. (NYSE:DLR) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 25 hedge fund portfolios held Digital Realty Trust, Inc. (NYSE:DLR) at the end of first quarter which was 30 in the previous quarter.
We discussed Digital Realty Trust, Inc. (NYSE:DLR) in another article and shared the list of stocks that will skyrocket. In addition, please check out our hedge fund investor letters Q2 2023 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
