Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 9.9 percentage points through the end of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Dynatrace, Inc. (NYSE:DT) was in 20 hedge funds’ portfolios at the end of the third quarter of 2019. DT has seen an increase in hedge fund sentiment of late. There were 0 hedge funds in our database with DT holdings 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 Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Glen Kacher of Light Street Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind let’s take a glance at the new hedge fund action regarding Dynatrace, Inc. (NYSE:DT).
What have hedge funds been doing with Dynatrace, Inc. (NYSE:DT)?
At the end of the third quarter, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20 from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DT over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the largest position in Dynatrace, Inc. (NYSE:DT). Citadel Investment Group has a $42.2 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Light Street Capital, led by Glen Kacher, holding a $25.5 million position; the fund has 1.8% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism include Spencer M. Waxman’s Shannon River Fund Management, Brad Gerstner’s Altimeter Capital Management and Philippe Laffont’s Coatue Management. In terms of the portfolio weights assigned to each position Shannon River Fund Management allocated the biggest weight to Dynatrace, Inc. (NYSE:DT), around 3.32% of its 13F portfolio. Light Street Capital is also relatively very bullish on the stock, designating 1.83 percent of its 13F equity portfolio to DT.
As aggregate interest increased, key money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, established the most valuable position in Dynatrace, Inc. (NYSE:DT). Citadel Investment Group had $42.2 million invested in the company at the end of the quarter. Glen Kacher’s Light Street Capital also initiated a $25.5 million position during the quarter. The other funds with brand new DT positions are Spencer M. Waxman’s Shannon River Fund Management, Brad Gerstner’s Altimeter Capital Management, and Philippe Laffont’s Coatue Management.
Let’s go over hedge fund activity in other stocks similar to Dynatrace, Inc. (NYSE:DT). These stocks are Enable Midstream Partners LP (NYSE:ENBL), Popular Inc (NASDAQ:BPOP), First Citizens BancShares Inc. (NASDAQ:FCNCA), and Nordstrom, Inc. (NYSE:JWN). This group of stocks’ market caps match DT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ENBL | 5 | 27783 | -2 |
| BPOP | 29 | 752647 | -1 |
| FCNCA | 16 | 161401 | -1 |
| JWN | 20 | 178075 | -7 |
| Average | 17.5 | 279977 | -2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $280 million. That figure was $147 million in DT’s case. Popular Inc (NASDAQ:BPOP) is the most popular stock in this table. On the other hand Enable Midstream Partners LP (NYSE:ENBL) is the least popular one with only 5 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on DT as the stock returned 42.3% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
