This morning, I joined Claymore President and Senior Managing Director Christian Magoon, as well as other Claymore executives, on the floor of the New York Stock Exchange for the launch of their newest exchange traded fund (ETF). The fund seeks to track the performance of the volatile airline industry.Most analysts are predicting overall good things for the airline industry in 2009, after an initial rough start, making Claymore Securities’ launch of the Claymore/NYSE Arca Airline ETF (FAA) today look like really good timing.
The fund gives traders the ability to quickly and conveniently participate in the volatile airline industry. To demonstrate just how volatile the industry is, in a down cycle airlines drift as low as 35% to 38% as compared to 17% to 18% for the Morgan Stanley Capital International World Index, a benchmark for global stocks, states Ted Redd of The Street.
The new ETF will hold both domestic and international airlines. On the domestic side, it will hold Continental (CAL), Southwest (LUV) and AMR (AMR), each at 15%. As for foreign carriers, Lufthansa, Singapore Airlines and Air France will each hold 4.5%. The fund has 25 components.
Delta (DAL), which is 4.8% of the fund, announced a $1.4 billion fourth-quarter loss, missing analyst estimates, reports Harry R. Weber for the Associated Press. Airline shares are diving today after the losses, as well as news of beat-up consumer confidence. Could this spark a buying opportunity?
With consumer spending on the decline, businesses pinching pennies, the history of airlines filing for bankruptcy, and the industry’s out-of-the-money fuel hedges, the near future of the airlines seems to be muddy, states Basili Alukos of Morningstar.
On the other hand, the price hikes that were implemented to offset rising crude costs, further consolidation of carriers, lower energy prices, President Barack Obama’s stimulus package, the fact that passenger traffic growth lags behind employment rate growth by about four months and the emphasis on higher-yielding international flights may actually allow the industry to gain some lost ground.
Overall, this ETF gives investors access to a sector that until now hasn’t been directly accessible in ETF form, and the airline industry is going to be interesting to watch this year. The expense ratio is 0.65%.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.