JETS - JETS: More Of A Warning Than An Investment
2023-09-14 12:15:25 ET
Summary
- U.S. Global Jets ETF experienced a surge in assets under management after Covid lockdowns, but has since been losing money due to lackluster performance.
- The ETF tracks the U.S. Global Jets Index and primarily focuses on the U.S. market, with top holdings in major American airlines.
- The aviation industry faces challenges such as fuel prices and labor relations, and the ETF's performance suggests potential weakness in the industry.
If you want to be a Millionaire, start with a billion dollars and launch a new airline. - Richard Branson.
No exchange-traded fund, or ETF, had more of an incredible run in terms of not just performance but also assets under management growth than the U.S. Global Jets ETF ( JETS ). Coming out of Covid lockdowns, investors piled into what was otherwise a dead product in one of the most incredible flows of investor money into an ETF in a long time.
The fund has been bleeding money ever since. Why? Because performance has been lackluster. This isn't a product I'd look towards as an investment here. Rather, this is more of a signal to me that the narrative around consumer and travel demand isn't all it's being made out to be.
What is the U.S. Global Jets ETF?
JETS is a passively managed ETF designed to track the performance of the U.S. Global Jets Index. Launched on April 30, 2015, by U.S. Global Investors, the fund aims to provide investors with access to the global airline industry, including airline operators, aircraft manufacturers, and airport companies from around the globe.
The ETF's portfolio is primarily concentrated on the U.S. market, with its top four holdings being prominent American Airlines. However, it also provides ample diversification through international companies.
JETS: Key Holdings and Allocation
The JETS ETF has a highly concentrated portfolio, with its top four holdings accounting for approximately 40% of the fund's total holdings. These include:
- Southwest Airlines ( LUV ) with 10% weighting.
- United Airlines ( UAL ) with 9.92% weighting.
- Delta Air Lines, Inc. ( DAL ) with 9.88% weighting.
- American Airlines ( AAL ) with 9.86% weighting.
Apart from these, the ETF also holds positions in other prominent airline companies and related industries, both domestically and internationally. The fund's total net assets amount to approximately $1.9 billion, making it one of the larger ETFs tracking the aviation industry.
Understanding the U.S. Global Jets Index
The U.S. Global Jets Index employs a smart-beta strategy to track the global airline industry's performance. This strategy combines the benefits of passive investment with the advantages of active management, using various fundamental factors to determine the world's most efficient airline companies.
The index ranks every company based on several factors, including market capitalization, average dollar value traded, passenger load factor, cash flow return on invested capital, sales per share growth, and gross margins.
Comparing JETS with its Peers
When compared to other ETFs in the same space, JETS stands out for its concentrated exposure to the aviation industry and its competitive expense ratio of 0.60%. Other popular ETFs in this space include the SPDR S&P Transportation ETF ( XTN ) and the iShares U.S. Transportation ETF ( IYT ). XTN tracks the S&P Transportation Select Industry Index with an expense ratio of 0.35%, while IYT tracks the Dow Jones Transportation Average Index with an expense ratio of 0.40%.
A Closer Look at the Aviation Industry
The aviation industry is a dynamic and rapidly growing sector, with a myriad of factors contributing to its growth prospects. The rise in disposable income among middle-class consumers, particularly in emerging markets like India and China, has led to an increase in air travel demand. This trend is further fueled by the cultural shift towards experiences over material possessions, particularly among millennials and Generation Z, driving increased demand for leisure travel.
However, the aviation industry is not without its challenges. Fluctuations in fuel prices, labor relations, and insurance costs can significantly affect airline companies. The fact that airports are full but that the stocks are not overall doing well on a relative basis is either a sign of investment complexity, and/or a signal that go-forward travel demand will be weak. From that standpoint, the fund's performance is noteworthy.
Wrapping Up
To sum up, while the U.S. Global Jets ETF presents a unique investment opportunity for those looking to gain exposure to the global aviation industry, the message in terms of relative strength is here. This is not one to consider allocating to right now, and if anything, performance suggests go-forward weakness in the industry will return with a vengeance. This has implications not only on buying airlines, but the broader stock market as well.
For further details see:
JETS: More Of A Warning Than An Investment