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Do Hedge Funds Love Dynatrace, Inc. (DT)?

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In this article you are going to find out whether hedge funds think Dynatrace, Inc. (NYSE:DT) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Dynatrace, Inc. (NYSE:DT) was in 50 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 53. DT has experienced a decrease in activity from the world's largest hedge funds lately. 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).

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 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Gabriel Plotkin Melvin Capital Management
Gabriel Plotkin Melvin Capital Management

Gabriel Plotkin of Melvin Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, artificial intelligence is one of the fastest-growing industries right now, so we are checking out stock pitches like this emerging AI 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 review the key hedge fund action regarding Dynatrace, Inc. (NYSE:DT).

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

Heading into the third quarter of 2021, a total of 50 of the hedge funds tracked by Insider Monkey were long 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 the smart money's positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Among these funds, HMI Capital held the most valuable stake in Dynatrace, Inc. (NYSE:DT), which was worth $379 million at the end of the second quarter. On the second spot was SRS Investment Management which amassed $354.4 million worth of shares. Alkeon Capital Management, Matrix Capital Management, and Shannon River Fund Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. 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, earmarking 9.28 percent of its 13F equity portfolio to DT.

Due to the fact that Dynatrace, Inc. (NYSE:DT) has witnessed a decline in interest from the smart money, it's safe to say that there were a few money managers that elected to cut their positions entirely last quarter. Intriguingly, Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors cut the largest stake of the "upper crust" of funds monitored by Insider Monkey, worth an estimated $17.3 million in stock, and Joe DiMenna's ZWEIG DIMENNA PARTNERS was right behind this move, as the fund cut about $8.5 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 2 funds last quarter.

Let's check out hedge fund activity in other stocks similar to Dynatrace, Inc. (NYSE:DT). These stocks are 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 match DT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CAH,40,897223,1 PTC,31,1958876,-2 CG,21,601725,-5 BIP,16,71356,4 ELAN,42,1996818,0 WIX,35,1381019,-5 ON,44,1021403,3 Average,32.7,1132631,-0.6 [/table]

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 22.9% in 2021 through October 1st but still managed to beat the market by 5.6 percentage points. Hedge funds were also right about betting on DT as the stock returned 24.6% since the end of June (through 10/1) 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.