Investment management firm, Davis Advisers, released its “Davis Financial Fund” 2022 annual investor letter. A copy of the same can be downloaded here. In 2022, the fund declined −8.91% slightly outperforming the S&P 500 Financials Index which returned −10.53%. Investments in property and casualty (P&C) insurance, foreign banks, and Berkshire Hathaway were the primary contributors while U.S. bank and consumer-lending holdings detracted from the performance. In addition, please check the fund’s top five holdings to know its best picks in 2022.
Davis Financial Fund highlighted stocks like Capital One Financial Corporation (NYSE:COF) in its 2022 annual investor letter. Headquartered in McLean, Virginia, Capital One Financial Corporation (NYSE:COF) is a financial services company. On March 10, 2023, Capital One Financial Corporation (NYSE:COF) stock closed at $98.19 per share. One-month return of Capital One Financial Corporation (NYSE:COF) was -16.34%, and its shares lost 26.54% of their value over the last 52 weeks. Capital One Financial Corporation (NYSE:COF) has a market capitalization of $37.418 billion.
Davis Financial Fund made the following comment about Capital One Financial Corporation (NYSE:COF) in its 2022 annual investor letter:
“Let’s consider our largest holding in Davis Financial Fund, Capital One Financial Corporation (NYSE:COF). The company’s two main consumer-facing lending businesses are credit cards and autos. Credit quality trends in both lines have followed a similar path, as seen in Figure 4. Delinquencies and charge-offs declined in 2020– 2021 relative to pre-COVID-19 levels, but more recently they’ve started to experience an uptick in delinquencies (which naturally would precede any increase in charge-offs). So, the trajectory does suggest that the credit environment is deteriorating from what it was, but the absolute level of the trend remains favorable relative to the longer-term past. As Capital One’s CEO Rich Fairbank recently noted, “It would be very abnormal if we were not seeing normalization.”
We try to avoid making forecasts about macroeconomic variables, though given the Federal Reserve’s desire to rein in inflation through tighter monetary policy, a recession within the next year or so remains the most plausible scenario. Regardless of exactly how the next six- to-eighteen months play out we’ve always assumed that our companies would need to live through a recession at some point during our holding period.
The important question is, how well prepared are the companies to get through it? Their first line of defense is the allowance for loan losses that has already been booked. Accounting rules require a company to make a “life of loan” estimate of total credit losses, so their existing allowance already reflects a consensus economic outlook that calls for a slowing economy and a gradual rise in the unemployment rate. The actual path taken by the economy can of course veer adversely from the current outlook, but the point is that banks’ reserves already incorporate a down payment on reversion to the mean of economic trends…” (Click here to read the full text)
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Capital One Financial Corporation (NYSE:COF) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 55 hedge fund portfolios held Capital One Financial Corporation (NYSE:COF) at the end of the fourth quarter which was 52 in the previous quarter.
We discussed Capital One Financial Corporation (NYSE:COF) in another article and shared Ken Fisher’s new purchases/additions. In addition, please check out our hedge fund investor letters Q4 2022 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
