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Here is What Hedge Funds Think About China Southern Airlines Co Ltd (ZNH)

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Abigail Fisher
·5 min read
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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. Insider Monkey finished processing 817 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of September 30th, 2020. What do these smart investors think about China Southern Airlines Co Ltd (NYSE:ZNH)?

China Southern Airlines Co Ltd (NYSE:ZNH) investors should be aware of an increase in hedge fund sentiment recently. China Southern Airlines Co Ltd (NYSE:ZNH) was in 3 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 5. Our calculations also showed that ZNH isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Ian Wace Marshall Wace
Ian Wace Marshall Wace

Ian Wace of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let's take a glance at the recent hedge fund action encompassing China Southern Airlines Co Ltd (NYSE:ZNH).

What does smart money think about China Southern Airlines Co Ltd (NYSE:ZNH)?

At the end of September, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in ZNH over the last 21 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in China Southern Airlines Co Ltd (NYSE:ZNH) was held by Renaissance Technologies, which reported holding $9.2 million worth of stock at the end of September. It was followed by Marshall Wace LLP with a $0.4 million position. The only other hedge fund that is bullish on the company was Citadel Investment Group.

Consequently, key money managers were leading the bulls' herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the most valuable position in China Southern Airlines Co Ltd (NYSE:ZNH). Marshall Wace LLP had $0.4 million invested in the company at the end of the 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. These stocks are Formula One Group (NASDAQ:FWONA), Trex Company, Inc. (NYSE:TREX), News Corp (NASDAQ:NWSA), Weibo Corp (NASDAQ:WB), Textron Inc. (NYSE:TXT), News Corp (NASDAQ:NWS), and Equitable Holdings, Inc. (NYSE:EQH). All of these stocks' market caps are similar to ZNH's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FWONA,19,257009,2 TREX,26,289064,-2 NWSA,31,485450,7 WB,13,86325,-1 TXT,23,477867,-1 NWS,14,39273,-2 EQH,36,1018604,-3 Average,23.1,379085,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.1 hedge funds with bullish positions and the average amount invested in these stocks was $379 million. That figure was $10 million in ZNH's case. Equitable Holdings, Inc. (NYSE:EQH) is the most popular stock in this table. On the other hand Weibo Corp (NASDAQ:WB) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks China Southern Airlines Co Ltd (NYSE:ZNH) is even less popular than WB. Our overall hedge fund sentiment score for ZNH is 24. 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. Hedge funds clearly dropped the ball on ZNH as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 percentage points. These stocks gained 28.1% in 2020 through November 23rd and still beat the market by 15.4 percentage points. A small number of hedge funds were also right about betting on ZNH as the stock returned 12.5% since Q3 (through November 23rd) and outperformed the market by an even larger margin.

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

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