Is Capital One Financial Corporation (NYSE:COF) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Hedge fund interest in Capital One Financial Corporation (NYSE:COF) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as The Bank of New York Mellon Corporation (NYSE:BK), ABB Ltd (NYSE:ABB), and Koninklijke Philips N.V. (NYSE:PHG) to gather more data points. Our calculations also showed that COF isn't among the 30 most popular stocks among hedge funds.
In the financial world there are a lot of gauges market participants put to use to appraise their holdings. Two of the less utilized gauges are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the top picks of the elite hedge fund managers can trounce the broader indices by a superb amount (see the details here).
[caption id="attachment_25717" align="aligncenter" width="440"] Steven Cohen of Point72 Asset Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to analyze the new hedge fund action regarding Capital One Financial Corporation (NYSE:COF).
How have hedgies been trading Capital One Financial Corporation (NYSE:COF)?
Heading into the fourth quarter of 2019, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. On the other hand, there were a total of 47 hedge funds with a bullish position in COF a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
More specifically, Pzena Investment Management was the largest shareholder of Capital One Financial Corporation (NYSE:COF), with a stake worth $501.5 million reported as of the end of September. Trailing Pzena Investment Management was Citadel Investment Group, which amassed a stake valued at $201.1 million. AQR Capital Management, Point72 Asset Management, and Arrowstreet Capital 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 Tegean Capital Management allocated the biggest weight to Capital One Financial Corporation (NYSE:COF), around 9.74% of its portfolio. Second Curve Capital is also relatively very bullish on the stock, designating 5.14 percent of its 13F equity portfolio to COF.
Judging by the fact that Capital One Financial Corporation (NYSE:COF) has experienced bearish sentiment from hedge fund managers, logic holds that there lies a certain "tier" of money managers that elected to cut their positions entirely last quarter. At the top of the heap, Zach Schreiber's Point State Capital said goodbye to the biggest position of all the hedgies followed by Insider Monkey, worth an estimated $84.4 million in stock, and Ari Zweiman's 683 Capital Partners was right behind this move, as the fund dumped about $22.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks similar to Capital One Financial Corporation (NYSE:COF). We will take a look at The Bank of New York Mellon Corporation (NYSE:BK), ABB Ltd (NYSE:ABB), Koninklijke Philips N.V. (NYSE:PHG), and UBS Group AG (NYSE:UBS). All of these stocks' market caps are similar to COF's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BK,50,5638516,17 ABB,13,325803,0 PHG,7,173329,-1 UBS,16,816881,2 Average,21.5,1738632,4.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $1739 million. That figure was $1937 million in COF's case. The Bank of New York Mellon Corporation (NYSE:BK) is the most popular stock in this table. On the other hand Koninklijke Philips N.V. (NYSE:PHG) is the least popular one with only 7 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Hedge funds were also right about betting on COF as the stock returned 8.3% during the fourth quarter (through 11/22) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.