Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Capital One Financial Corp. (NYSE:COF) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Is Capital One Financial Corp. (NYSE:COF) worth your attention right now? Money managers are taking an optimistic view. The number of long hedge fund bets moved up by 3 lately. Our calculations also showed that COF isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Richard S. Pzena of Pzena Investment Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now we’re going to take a peek at the key hedge fund action regarding Capital One Financial Corp. (NYSE:COF).
What have hedge funds been doing with Capital One Financial Corp. (NYSE:COF)?
Heading into the first quarter of 2020, a total of 50 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in COF over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Richard S. Pzena’s Pzena Investment Management has the most valuable position in Capital One Financial Corp. (NYSE:COF), worth close to $571.3 million, corresponding to 2.7% of its total 13F portfolio. On Pzena Investment Management’s heels is AQR Capital Management, led by Cliff Asness, holding a $255.9 million position; 0.3% of its 13F portfolio is allocated to the stock. Remaining professional money managers that hold long positions comprise Ken Griffin’s Citadel Investment Group, Jacob Mitchell’s Antipodes Partners and Ken Fisher’s Fisher Asset Management. In terms of the portfolio weights assigned to each position Antipodes Partners allocated the biggest weight to Capital One Financial Corp. (NYSE:COF), around 5.77% of its 13F portfolio. Second Curve Capital is also relatively very bullish on the stock, designating 4.77 percent of its 13F equity portfolio to COF.
With a general bullishness amongst the heavyweights, key hedge funds have jumped into Capital One Financial Corp. (NYSE:COF) headfirst. Gillson Capital, managed by Daniel Johnson, assembled the largest position in Capital One Financial Corp. (NYSE:COF). Gillson Capital had $46.8 million invested in the company at the end of the quarter. Clint Carlson’s Carlson Capital also made a $10.9 million investment in the stock during the quarter. The other funds with brand new COF positions are Joe DiMenna’s ZWEIG DIMENNA PARTNERS, Michael Anderson’s Hi-Line Capital Management, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s check out 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 DuPont de Nemours Inc (NYSE:DD), Kimberly Clark Corporation (NYSE:KMB), ING Groep N.V. (NYSE:ING), and Metlife Inc (NYSE:MET). This group of stocks’ market values are similar to COF’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DD | 68 | 2372175 | 16 |
| KMB | 37 | 1058671 | -5 |
| ING | 14 | 635357 | 4 |
| MET | 38 | 2371511 | -1 |
| Average | 39.25 | 1609429 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.25 hedge funds with bullish positions and the average amount invested in these stocks was $1609 million. That figure was $2041 million in COF’s case. DuPont de Nemours Inc (NYSE:DD) is the most popular stock in this table. On the other hand ING Groep N.V. (NYSE:ING) is the least popular one with only 14 bullish hedge fund positions. Capital One Financial Corp. (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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but beat the market by 1.9 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 -28.7% during the same time period 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.
Disclosure: None. This article was originally published at Insider Monkey.
