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

Keeping this in mind, let’s analyze whether Dynatrace, Inc. (NYSE:DT) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

Dynatrace, Inc. (NYSE:DT) has experienced an increase in support from the world’s most elite money managers recently. The cloud computing company (NYSE:DT) was in 41 hedge funds’ portfolios at the end of June. The all time high for this statistics is 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 35 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 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 56 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.

Jeffrey Talpins of Element Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. With all of this in mind let’s take a peek at the latest hedge fund action surrounding Dynatrace, Inc. (NYSE:DT).

How are hedge funds trading Dynatrace, Inc. (NYSE:DT)?

At second quarter’s end, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from the first quarter of 2020. On the other hand, there were a total of 0 hedge funds with a bullish position in DT a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Dynatrace, Inc. (NYSE:DT) was held by Coatue Management, which reported holding $268 million worth of stock at the end of September. It was followed by Holocene Advisors with a $109.5 million position. Other investors bullish on the company included Jericho Capital Asset Management, HMI Capital, and Light Street Capital. In terms of the portfolio weights assigned to each position Shannon River Fund Management allocated the biggest weight to Dynatrace, Inc. (NYSE:DT), around 8.07% of its 13F portfolio. Cota Capital is also relatively very bullish on the stock, earmarking 7.33 percent of its 13F equity portfolio to DT.

As industrywide interest jumped, key hedge funds have been driving this bullishness. Holocene Advisors, managed by Brandon Haley, assembled the most valuable position in Dynatrace, Inc. (NYSE:DT). Holocene Advisors had $109.5 million invested in the company at the end of the quarter. Josh Resnick’s Jericho Capital Asset Management also made a $101.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Louis Bacon’s Moore Global Investments, Jeffrey Talpins’s Element Capital Management, and Joe DiMenna’s ZWEIG DIMENNA PARTNERS.

Let’s now take a look at hedge fund activity in other stocks similar to Dynatrace, Inc. (NYSE:DT). These stocks are Teledyne Technologies Incorporated (NYSE:TDY), Black Knight, Inc. (NYSE:BKI), Halliburton Company (NYSE:HAL), Equity Lifestyle Properties, Inc. (NYSE:ELS), Principal Financial Group Inc (NASDAQ:PFG), Neurocrine Biosciences, Inc. (NASDAQ:NBIX), and Waters Corporation (NYSE:WAT). This group of stocks’ market values are closest to DT’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.1 hedge funds with bullish positions and the average amount invested in these stocks was $600 million. That figure was $1061 million in DT’s case. Black Knight, Inc. (NYSE:BKI) is the most popular stock in this table. On the other hand Halliburton Company (NYSE:HAL) is the least popular one with only 30 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 overall hedge fund sentiment score for DT is 79.3. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 30% in 2020 through October 23rd and beat the market by 21 percentage points. Unfortunately DT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on DT were disappointed as the stock returned 6.7% since the end of June (through 10/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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