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Do Hedge Funds Love Digital Realty Trust, Inc. (DLR)?

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Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Digital Realty Trust, Inc. (NYSE:DLR)? The smart money sentiment can provide an answer to this question.

Digital Realty Trust, Inc. (NYSE:DLR) was in 22 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 34. DLR shareholders have witnessed a decrease in enthusiasm from smart money recently. There were 23 hedge funds in our database with DLR positions at the end of the fourth quarter. Our calculations also showed that DLR isn't among the 30 most popular stocks among hedge funds (click for Q1 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 115 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.

Peter Algert of Algert Global

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery 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. Keeping this in mind let's analyze the recent hedge fund action encompassing Digital Realty Trust, Inc. (NYSE:DLR).

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

Heading into the second quarter of 2021, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards DLR over the last 23 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Jasper Ridge Partners, managed by Mark Wolfson and Jamie Alexander, holds the biggest position in Digital Realty Trust, Inc. (NYSE:DLR). Jasper Ridge Partners has a $91.9 million position in the stock, comprising 4.1% of its 13F portfolio. The second largest stake is held by Stuart J. Zimmer of Zimmer Partners, with a $70.4 million position; 1% of its 13F portfolio is allocated to the company. Other members of the smart money with similar optimism consist of Phill Gross and Robert Atchinson's Adage Capital Management, Cliff Asness's AQR Capital Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Jasper Ridge Partners allocated the biggest weight to Digital Realty Trust, Inc. (NYSE:DLR), around 4.08% of its 13F portfolio. Beech Hill Partners is also relatively very bullish on the stock, setting aside 1.57 percent of its 13F equity portfolio to DLR.

Because Digital Realty Trust, Inc. (NYSE:DLR) has witnessed falling interest from hedge fund managers, we can see that there is a sect of funds that slashed their positions entirely in the first quarter. Intriguingly, Dmitry Balyasny's Balyasny Asset Management sold off the largest stake of the 750 funds watched by Insider Monkey, comprising an estimated $13.9 million in stock, and Felix Wai's Zeno Research was right behind this move, as the fund dumped about $3 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 1 funds in the first quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Digital Realty Trust, Inc. (NYSE:DLR) but similarly valued. These stocks are HP Inc. (NYSE:HPQ), Veeva Systems Inc (NYSE:VEEV), Amphenol Corporation (NYSE:APH), Trane Technologies plc (NYSE:TT), T. Rowe Price Group, Inc. (NASDAQ:TROW), Electronic Arts Inc. (NASDAQ:EA), and Constellation Brands, Inc. (NYSE:STZ). This group of stocks' market caps resemble DLR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HPQ,43,1526496,4 VEEV,39,966072,3 APH,42,1077461,1 TT,35,1092597,1 TROW,26,303927,-9 EA,44,1430436,-6 STZ,58,1231651,0 Average,41,1089806,-0.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 41 hedge funds with bullish positions and the average amount invested in these stocks was $1090 million. That figure was $296 million in DLR's case. Constellation Brands, Inc. (NYSE:STZ) is the most popular stock in this table. On the other hand T. Rowe Price Group, Inc. (NASDAQ:TROW) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Digital Realty Trust, Inc. (NYSE:DLR) is even less popular than TROW. Our overall hedge fund sentiment score for DLR is 23.4. 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 gained 23.8% in 2021 through July 16th but managed to beat the market by 7.7 percentage points. A small number of hedge funds were also right about betting on DLR, though not to the same extent, as the stock returned 12.5% since the end of March (through July 16th) and outperformed the market as well.

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