Can JETS Get Off the Ground?

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The pandemic wreaked havoc on the airline, hospitality, and entertainment industries. It caused Warren Buffett to sell his airline stocks. But they rallied after receiving a $25 billion bailout.

2022 has been a different story. Demand bounced back. Yet, the economy is facing a recession. With higher fuel prices and inflation hurting consumers, airline stocks have struggled.

Which makes us curious as to why the airline ETF JETS is so popular. 

It’s the number one industrial ETF search, garnering way more eyeballs than the standard Industrial ETF XLI.

Does that mean the financial pros know something the rest of us don’t?

U.S. Global Jets ETF (JETS) provides investors with an easy way to access the global airline industry, including airline operators and manufacturers. 

Individual airlines can be notoriously difficult to invest in. Yet, as a whole, the industry waxes and wanes with the economy.

Here are some more details about the JETS portfolio:

• Return on equity -5.2%
• Price/Book Ratio 3.2x
• Price/Earnings -5.2x
• Weighted Average Market Cap $15.3 billion

Four companies make up approximately 36% of the ETF’s weighting. They are Southwest Airlines (LUV), Delta Airlines (DAL), American Airlines (AAL), and United Airlines (AAL).

Here are the top ten:

If you invested $10K in JETS five years ago, it would be worth approximately $6,207, down 38.3%. JETS is down 21.13% year-to-date.  

Meanwhile, if you chose to invest in the SPDR S&P 500 ETF five years ago, you’d be up by 75.2%. 

It’s fair to say that those folks who told you to buy the dip on the worst stocks of 2020 didn’t have a handle on the economic outlook.

Trading JETS

JETS is an actively traded ETF, with an average daily volume of 5.2 million shares. You can also trade options on it, ranging from weekly to LEAPS contracts. 

Investing In JETS

You want to avoid ETFs that charge an expense ratio of 1% or greater unless its performance has been exceptional. JETS charges an expense ratio of 0.60%, which is not bad. 

Alternatives To JETS

JETS is the only ETF dedicated to the airline industry. However, there are some alternatives investors can consider.

One of them is the SPDR S&P Transportation ETF (XTN). It charges an expense ratio of 0.35%. The ETF includes stocks in the following sectors:  Air Freight & Logistics, Airlines, Airport Services, Highways & Rail Tracks, Marine, Marine Ports & Services, Railroads, and Trucking. Over the last five years it has returned 35.6%. It pays an annual dividend of $0.62 per share. 

Another option investors have is the iShares US Transportation ETF (IYT). The ETF gives investors exposure to the U.S. airline, railroad, and trucking industry. It charges an expense ratio of 0.41%. IYT pays an annual dividend of $2.46 per share, or 1.08%. If you invested in IYT five years ago, you would have received a return of 44%.

A third option investors might want to consider is the Direxion Travel & Vacation ETF (OOTO). 

Now, this isn’t a traditional ETF, it is leveraged, seeking a return of 200% of its benchmark, The BlueStar Travel and Vacation Index. It gives investors exposure to hotel, restaurants & leisure, airlines, equity REITS, entertainment, aerospace & defense, IT services, and interactive media & services. The majority of the ETF’s weighting, 60%, is in hotel, restaurants & leisure while airlines make approximately 18% of its weight. Over the last five years, the ETF is down 58%. It charges an expense ratio of 1.32%. 

Our Opinion 2/10

Investing in airlines is the equivalent of burning money. It’s simply never worked out.

JETS performance over the last five years is indicative of that. Of course, there will be moments to trade JETS, and it can be profitable if you catch a good catalyst. 

But long term, as an investment, it’s just not that good. 

If you do want exposure to the airline industry, we’d rather you look at IYT or XTN. Both have significantly outperformed JETS, while offering investors a dividend, and diversification.