What Are Airline ETFs?… Airline ETFs are exchange-traded funds that invest primarily in stocks of companies in the airline industry, which may include those involved in airline services, airliner manufacturing, air freight and logistics, airport services and related companies in the transportation industry.
Like most ETFs, airline ETFs typically track the performance of an underlying index, which in this case would be comprised of stocks of companies involved in the airline industry. The passive nature of index-based ETFs can provide low-cost access to a basket of securities, as opposed to investing in individual securities.
Top airline industry stocks in 2019 include stocks like Delta Airlines (DAL), United Airlines (UAL) and FedEx Corporation (FDX).
Airline ETFs to Buy in 2019… The best airline ETFs will have a combination of concentrated exposure to the airline industry, low expenses, and high relative assets under management. These key characteristics will assure potential investors that they are getting quality ETFs that can accurately track the performance of the respective underlying index.
Here are some of the best airline ETFs to buy in 2019:
U.S. Global Jets ETF (JETS): The only ETF that exclusively holds airline stocks, JETS is the fund to buy if you want to narrowly focus on stocks of airline companies like DAL and UAL. JETS tracks the performance of the Global Jets Index, which consists primarily of stocks of aircraft manufacturers, terminal services companies and airports. The fund’s been around for just four years but that’s sufficient history to attract assets and review historic performance (three years’ minimum is ideal). Expenses are 0.60, or $60 for every $10,000 invested.
iShares Transportation Average ETF (IYT): For investors wanting broader diversification within the transportation sector and still get exposure to the airline industry, IYT is one of the best ETFs to do it. The portfolio tracks the Dow Jones Transportation Average Index, which consists of roughly 30% railroad stocks, air freight, and logistics at around 27%, airlines at 17%, and the remaining assets in trucking and marine. Expenses are 0.43%.
SPDR S&P Transportation ETF (XTN): Another transportation sector ETF with a high concentration of airline industry stocks, XTN tracks the S&P Transportation Select Industry Index. Allocation to airline industry sub-sectors is approximately 26% airlines, 23% air freight and logistics, and 3% airport services. The balance of assets is in trucking, railroads, and marine. Expenses are low at 0.35%.
The Outlook for Airline ETFs… The airline industry is a part of the broader transportation sector, as well as the consumer discretionary sector for stocks. This means that the performance of many airline stocks will often depend upon the collective financial health and sentiment of consumers.
Airline stocks and ETFs tend to perform better when the economy is strong and when consumers feel confident about their financial future.
In the past decade, through Q1 2019, stocks in the transportation industry as a whole have outperformed the U.S. stock market, as measured by the S&P 500 index. However, the narrower airline industry has not outperformed the major market indices.
Looking forward, airline stocks could see solid performance due to expectations for relative strength in revenue per seat mile (RPSM), a key measure reviewed by stock analysts when considering the purchase of these stocks. In fact, the richest, most famous investor in the world, Warren Buffett, holds multiple positions in airliner stocks through his conglomerate, Berkshire Hathaway, Inc., which is the largest shareholder in the major airliner stock, United Airlines (UAL).
Bottom Line… Airline ETFs can be a smart way of investing in stocks of companies in the airline industry. Historically, the transportation sector, which includes airline industry stocks and other transportation industries, has performed better than airline industry stocks in isolation. Therefore, investors wanting greater diversification with potential for greater long-term performance, may consider investing in a transportation sector ETF with concentrated exposure to airline stocks. Investors should not allocate more than 5-10% of their portfolio to any one sector of the economy.
Disclaimer: The information on this site is provided for discussion purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.