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Did Hedge Funds Drop The Ball On Capital One Financial Corp. (COF)?

Reymerlyn Martin

Insider Monkey finished processing more than 738 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of March 31st, 2019. In this article we are going to take a look at smart money sentiment towards Capital One Financial Corp. (NYSE:COF).

Capital One Financial Corp. (NYSE:COF) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 44 hedge funds' portfolios at the end of the first quarter of 2019. At the end of this article we will also compare COF to other stocks including Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA), National Grid plc (NYSE:NGG), and Equinix Inc (NASDAQ:EQIX) to get a better sense of its popularity.

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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

MOORE GLOBAL INVESTMENTS

Let's take a look at the new hedge fund action regarding Capital One Financial Corp. (NYSE:COF).

How are hedge funds trading Capital One Financial Corp. (NYSE:COF)?

At Q1's end, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in COF over the last 15 quarters. With hedgies' capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

COF_jun2019

The largest stake in Capital One Financial Corp. (NYSE:COF) was held by Pzena Investment Management, which reported holding $461.8 million worth of stock at the end of March. It was followed by Point72 Asset Management with a $219.5 million position. Other investors bullish on the company included Millennium Management, D E Shaw, and Fisher Asset Management.

Since Capital One Financial Corp. (NYSE:COF) has experienced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there were a few hedgies who were dropping their entire stakes in the third quarter. Interestingly, David Costen Haley's HBK Investments said goodbye to the largest stake of all the hedgies watched by Insider Monkey, totaling about $24 million in stock, and Principal Global Investors's Columbus Circle Investors was right behind this move, as the fund sold off about $23.6 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Capital One Financial Corp. (NYSE:COF) but similarly valued. We will take a look at Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA), National Grid plc (NYSE:NGG), Equinix Inc (NASDAQ:EQIX), and Public Storage (NYSE:PSA). All of these stocks' market caps resemble COF's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BBVA,4,236051,0 NGG,8,462077,-2 EQIX,38,1723610,-4 PSA,25,877796,7 Average,18.75,824884,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $825 million. That figure was $1694 million in COF's case. Equinix Inc (NASDAQ:EQIX) is the most popular stock in this table. On the other hand Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Capital One Financial Corp. (NYSE:COF) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on COF as the stock returned 8.6% during the same period 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.

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

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