Were Hedge Funds Right About Dynatrace, Inc. (DT)?

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on June 30th. We at Insider Monkey have made an extensive database of more than 873 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Dynatrace, Inc. (NYSE:DT) based on those filings.

Dynatrace, Inc. (NYSE:DT) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. Dynatrace, Inc. (NYSE:DT) was in 50 hedge funds’ portfolios at the end of June. The all time high for this statistic is 53. There were 52 hedge funds in our database with DT positions at the end of the first quarter. Our calculations also showed that DT isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Gabriel Plotkin of Melvin Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining 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 we’re going to view the recent hedge fund action surrounding Dynatrace, Inc. (NYSE:DT).

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

At second quarter’s end, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DT over the last 24 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

The largest stake in Dynatrace, Inc. (NYSE:DT) was held by HMI Capital, which reported holding $379 million worth of stock at the end of June. It was followed by SRS Investment Management with a $354.4 million position. Other investors bullish on the company included Alkeon Capital Management, Matrix Capital Management, and Shannon River Fund Management. In terms of the portfolio weights assigned to each position HMI Capital allocated the biggest weight to Dynatrace, Inc. (NYSE:DT), around 11.87% of its 13F portfolio. Cota Capital is also relatively very bullish on the stock, setting aside 9.28 percent of its 13F equity portfolio to DT.

Due to the fact that Dynatrace, Inc. (NYSE:DT) has experienced declining sentiment from the smart money, logic holds that there exists a select few hedge funds that elected to cut their full holdings heading into Q3. Intriguingly, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors dropped the biggest position of the “upper crust” of funds followed by Insider Monkey, worth close to $17.3 million in stock. Joe DiMenna’s fund, ZWEIG DIMENNA PARTNERS, also sold off its stock, about $8.5 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 2 funds heading into Q3.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Dynatrace, Inc. (NYSE:DT) but similarly valued. We will take a look at Cardinal Health, Inc. (NYSE:CAH), PTC Inc (NASDAQ:PTC), The Carlyle Group Inc (NASDAQ:CG), Brookfield Infrastructure Partners L.P. (NYSE:BIP), Elanco Animal Health Incorporated (NYSE:ELAN), Wix.Com Ltd (NASDAQ:WIX), and ON Semiconductor Corporation (NASDAQ:ON). 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 32.7 hedge funds with bullish positions and the average amount invested in these stocks was $1133 million. That figure was $1950 million in DT’s case. ON Semiconductor Corporation (NASDAQ:ON) is the most popular stock in this table. On the other hand Brookfield Infrastructure Partners L.P. (NYSE:BIP) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Dynatrace, Inc. (NYSE:DT) is more popular among hedge funds. Our overall hedge fund sentiment score for DT is 81.3. 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. 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 returned 29.6% in 2021 through November 5th but still managed to beat the market by 3.1 percentage points. Hedge funds were also right about betting on DT as the stock returned 30.6% since the end of June (through 11/5) 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.