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Do Hedge Funds Love China Southern Airlines Co Ltd (ZNH)?

Abigail Fisher

How do we determine whether China Southern Airlines Co Ltd (NYSE:ZNH) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.

Is China Southern Airlines Co Ltd (NYSE:ZNH) the right investment to pursue these days? The smart money is in a bullish mood. The number of bullish hedge fund positions moved up by 1 recently. Our calculations also showed that ZNH isn't among the 30 most popular stocks among hedge funds.

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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_26340" align="aligncenter" width="467"] Ken Griffin of Citadel Investment Group[/caption]

CITADEL INVESTMENT GROUP

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. Let's check out the recent hedge fund action regarding China Southern Airlines Co Ltd (NYSE:ZNH).

Hedge fund activity in China Southern Airlines Co Ltd (NYSE:ZNH)

At Q3's end, a total of 2 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 100% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ZNH over the last 17 quarters. With hedge funds' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

ZNH_nov2019

The largest stake in China Southern Airlines Co Ltd (NYSE:ZNH) was held by Renaissance Technologies, which reported holding $12.1 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $0.2 million position.

There weren't any hedge funds initiating brand new positions in the stock during the third quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as China Southern Airlines Co Ltd (NYSE:ZNH) but similarly valued. We will take a look at Albemarle Corporation (NYSE:ALB), Ralph Lauren Corporation (NYSE:RL), Cabot Oil & Gas Corporation (NYSE:COG), and NovoCure Limited (NASDAQ:NVCR). All of these stocks' market caps are closest to ZNH's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALB,17,148538,-1 RL,31,842866,-4 COG,38,667348,1 NVCR,22,375699,0 Average,27,508613,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $509 million. That figure was $12 million in ZNH's case. Cabot Oil & Gas Corporation (NYSE:COG) is the most popular stock in this table. On the other hand Albemarle Corporation (NYSE:ALB) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks China Southern Airlines Co Ltd (NYSE:ZNH) is even less popular than ALB. Hedge funds dodged a bullet by taking a bearish stance towards ZNH. Our calculations showed that the top 20 most popular hedge fund stocks returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately ZNH wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ZNH investors were disappointed as the stock returned 2.6% during the fourth quarter (through 11/22) 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 70 percent of these stocks already outperformed the market so far in Q4.

Disclosure: None. This article was originally published at Insider Monkey. Read our article about the 10 biggest airports in the world in 2019.

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