Was The Smart Money Right About Piling Into Capital One Financial (COF)?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards Capital One Financial Corp. (NYSE:COF) changed recently.

Capital One Financial Corp. (NYSE:COF) investors should pay attention to an increase in enthusiasm from smart money of late. Capital One Financial Corp. (NYSE:COF) was in 56 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 55. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 42 hedge funds in our database with COF holdings at the end of September. Our calculations also showed that COF isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

According to most shareholders, hedge funds are seen as worthless, old financial vehicles of the past. While there are greater than 8000 funds with their doors open today, We look at the top tier of this club, around 850 funds. These investment experts control bulk of the smart money’s total capital, and by keeping an eye on their first-class stock picks, Insider Monkey has discovered various investment strategies that have historically outstripped the broader indices. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 197% since March 2017 (through March 2021) and beat the S&P 500 Index by 124 percentage points. You can download a sample issue of this newsletter on our website .

Richard S. Pzena of Pzena Investment Management

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Do Hedge Funds Think COF Is A Good Stock To Buy Now?

Heading into the first quarter of 2021, a total of 56 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from one quarter earlier. On the other hand, there were a total of 50 hedge funds with a bullish position in COF a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Among these funds, Pzena Investment Management held the most valuable stake in Capital One Financial Corp. (NYSE:COF), which was worth $577.5 million at the end of the fourth quarter. On the second spot was Eagle Capital Management which amassed $404.2 million worth of shares. Citadel Investment Group, Fisher Asset Management, and Point State 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 Strycker View Capital allocated the biggest weight to Capital One Financial Corp. (NYSE:COF), around 7.33% of its 13F portfolio. Antipodes Partners is also relatively very bullish on the stock, earmarking 7 percent of its 13F equity portfolio to COF.

As aggregate interest increased, specific money managers have been driving this bullishness. Holocene Advisors, managed by Brandon Haley, established the most outsized position in Capital One Financial Corp. (NYSE:COF). Holocene Advisors had $63.3 million invested in the company at the end of the quarter. Josh Donfeld and David Rogers’s Castle Hook Partners also initiated a $60.6 million position during the quarter. The following funds were also among the new COF investors: James Parsons’s Junto Capital Management, Kevin D. Eng’s Columbus Hill Capital Management, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s check out hedge fund activity in other stocks similar to Capital One Financial Corp. (NYSE:COF). These stocks are Roper Technologies Inc. (NYSE:ROP), Keurig Dr Pepper Inc. (NASDAQ:KDP), The Blackstone Group Inc. (NYSE:BX), NXP Semiconductors NV (NASDAQ:NXPI), Peloton Interactive, Inc. (NASDAQ:PTON), Vodafone Group Plc (NASDAQ:VOD), and Palantir Technologies Inc. (NYSE:PLTR). This group of stocks’ market caps are closest to COF’s market cap.

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As you can see these stocks had an average of 43.9 hedge funds with bullish positions and the average amount invested in these stocks was $2064 million. That figure was $3028 million in COF’s case. NXP Semiconductors NV (NASDAQ:NXPI) is the most popular stock in this table. On the other hand Vodafone Group Plc (NASDAQ:VOD) is the least popular one with only 17 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. Our overall hedge fund sentiment score for COF is 79.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on COF as the stock returned 51.3% since the end of Q4 (through 4/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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