Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Capital One Financial Corporation (NYSE:COF) in this article.
Is Capital One Financial Corporation (NYSE:COF) a buy, sell, or hold? Hedge funds are selling. The number of long hedge fund bets were cut by 2 lately. Our calculations also showed that COF isn't among the 30 most popular stocks among hedge funds (see the video at the end of this article). COF was in 42 hedge funds' portfolios at the end of the second quarter of 2019. There were 44 hedge funds in our database with COF holdings at the end of the previous quarter.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to 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 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's analyze the new hedge fund action surrounding Capital One Financial Corporation (NYSE:COF).
How are hedge funds trading Capital One Financial Corporation (NYSE:COF)?
Heading into the third quarter of 2019, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards COF over the last 16 quarters. With the smart money's capital changing hands, there exists a few key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
The largest stake in Capital One Financial Corporation (NYSE:COF) was held by Pzena Investment Management, which reported holding $510.4 million worth of stock at the end of March. It was followed by Millennium Management with a $225.7 million position. Other investors bullish on the company included Point72 Asset Management, Arrowstreet Capital, and Citadel Investment Group.
Judging by the fact that Capital One Financial Corporation (NYSE:COF) has faced bearish sentiment from the smart money, it's easy to see that there is a sect of hedgies that slashed their full holdings last quarter. At the top of the heap, Paul Marshall and Ian Wace's Marshall Wace LLP dropped the biggest stake of the "upper crust" of funds tracked by Insider Monkey, comprising an estimated $25.3 million in stock, and Jim Simons's Renaissance Technologies was right behind this move, as the fund dropped about $22.6 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Capital One Financial Corporation (NYSE:COF) but similarly valued. We will take a look at The Sherwin-Williams Company (NYSE:SHW), The Bank of New York Mellon Corporation (NYSE:BK), Public Storage (NYSE:PSA), and Analog Devices, Inc. (NASDAQ:ADI). This group of stocks' market valuations match COF's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SHW,40,1429509,-2 BK,33,4940344,-3 PSA,20,824189,-5 ADI,44,2910043,4 Average,34.25,2526021,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $2526 million. That figure was $2009 million in COF's case. Analog Devices, Inc. (NASDAQ:ADI) is the most popular stock in this table. On the other hand Public Storage (NYSE:PSA) is the least popular one with only 20 bullish hedge fund positions. Capital One Financial Corporation (NYSE:COF) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately COF wasn't nearly as popular as these 20 stocks and hedge funds that were betting on COF were disappointed as the stock returned 0.7% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.