Hedge Funds Are Warming Up To China Eastern Airlines Corp. Ltd. (CEA)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of China Eastern Airlines Corp. Ltd. (NYSE:CEA) based on that data.

Is China Eastern Airlines Corp. Ltd. (NYSE:CEA) going to take off soon? Money managers were getting more bullish. The number of bullish hedge fund bets went up by 2 recently. China Eastern Airlines Corp. Ltd. (NYSE:CEA) was in 3 hedge funds’ portfolios at the end of March. The all time high for this statistic is 2. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that CEA isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 1 hedge funds in our database with CEA positions at the end of the fourth quarter.

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’ 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 115 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.

Peter Rathjens of Arrowstreet Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $26 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we’re going to analyze the latest hedge fund action surrounding China Eastern Airlines Corp. Ltd. (NYSE:CEA).

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

Heading into the second quarter of 2021, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 200% from one quarter earlier. On the other hand, there were a total of 0 hedge funds with a bullish position in CEA a year ago. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital has the biggest position in China Eastern Airlines Corp. Ltd. (NYSE:CEA), worth close to $1.4 million, comprising less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, managed by Ken Griffin, which holds a $0.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. In terms of the portfolio weights assigned to each position Arrowstreet Capital allocated the biggest weight to China Eastern Airlines Corp. Ltd. (NYSE:CEA), around 0.0019% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0.0003 percent of its 13F equity portfolio to CEA.

As aggregate interest increased, specific money managers have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, assembled the most outsized position in China Eastern Airlines Corp. Ltd. (NYSE:CEA). Citadel Investment Group had $0.4 million invested in the company at the end of the quarter. Renaissance Technologies also made a $0.2 million investment in the stock during the quarter.

Let’s also examine hedge fund activity in other stocks similar to China Eastern Airlines Corp. Ltd. (NYSE:CEA). These stocks are FactSet Research Systems Inc. (NYSE:FDS), Brookfield Renewable Partners L.P. (NYSE:BEP), Vedanta Ltd (NYSE:VEDL), Equity Lifestyle Properties, Inc. (NYSE:ELS), Black Knight, Inc. (NYSE:BKI), Invesco Ltd. (NYSE:IVZ), and Erie Indemnity Company (NASDAQ:ERIE). All of these stocks’ market caps match CEA’s market cap.

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As you can see these stocks had an average of 25.3 hedge funds with bullish positions and the average amount invested in these stocks was $487 million. That figure was $2 million in CEA’s case. Black Knight, Inc. (NYSE:BKI) is the most popular stock in this table. On the other hand Vedanta Ltd (NYSE:VEDL) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks China Eastern Airlines Corp. Ltd. (NYSE:CEA) is even less popular than VEDL. Our overall hedge fund sentiment score for CEA is 37. 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 dodged a bullet by taking a bearish stance towards CEA. Our calculations showed that the top 10 most popular hedge fund stocks returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th but managed to beat the market again by 3.3 percentage points. Unfortunately CEA wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was very bearish); CEA investors were disappointed as the stock returned -4.9% since the end of the first quarter (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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