Investing in hedge funds can bring large profits, but it’s not for everybody since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.
Capital One Financial Corp. (NYSE:COF) shareholders have witnessed an increase in support from the world's most elite money managers lately. COF was in 47 hedge funds' portfolios at the end of September. There were 40 hedge funds in our database with COF positions at the end of the previous quarter. Our calculations also showed that COF isn't among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to the beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to view the recent hedge fund action surrounding Capital One Financial Corp. (NYSE:COF).
What does the smart money think about Capital One Financial Corp. (NYSE:COF)?
At Q3's end, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the previous quarter. On the other hand, there were a total of 41 hedge funds with a bullish position in COF at the beginning of this year. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Pzena Investment Management, managed by Richard S. Pzena, holds the largest position in Capital One Financial Corp. (NYSE:COF). Pzena Investment Management has a $517.8 million position in the stock, comprising 2.5% of its 13F portfolio. Coming in second is Citadel Investment Group, managed by Ken Griffin, which holds a $435.2 million position; 0.2% of its 13F portfolio is allocated to the stock. Other professional money managers that hold long positions comprise Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Dmitry Balyasny's Balyasny Asset Management and Cliff Asness's AQR Capital Management.
Consequently, key hedge funds have been driving this bullishness. Renaissance Technologies, managed by Jim Simons, established the biggest position in Capital One Financial Corp. (NYSE:COF). Renaissance Technologies had $99.8 million invested in the company at the end of the quarter. Ravi Chopra's Azora Capital also initiated a $54 million position during the quarter. The following funds were also among the new COF investors: Matthew Tewksbury's Stevens Capital Management, Ron Gutfleish's Elm Ridge Capital, and Deepak Gulati's Argentiere Capital.
Let's now review hedge fund activity in other stocks similar to Capital One Financial Corp. (NYSE:COF). These stocks are Infosys Limited (NYSE:INFY), Ecolab Inc. (NYSE:ECL), Tesla Inc. (NASDAQ:TSLA), and Cognizant Technology Solutions Corp (NASDAQ:CTSH). This group of stocks' market values resembles COF's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INFY,18,1130365,2 ECL,23,2568307,-7 TSLA,31,373713,12 CTSH,42,2032175,0 Average,28.5,1526,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $1526 million. That figure was $2510 million in COF's case. Cognizant Technology Solutions Corp (NASDAQ:CTSH) is the most popular stock in this table. On the other hand, Infosys Limited (NYSE:INFY) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Capital One Financial Corp. (NYSE:COF) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.