Memorial Day is nearly here and with that holiday comes the arrival of the summer travel season. In previous years, obvious summer travel season investment strategies have included exchange traded funds such as the United States Gasoline Fund (NYSEArca: UGA) and the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY).
The newly minted U.S. Global Jets ETF (NYSEArca: JETS) belongs in the summer travel/ETF conversation and with good reason.
On Monday industry trade group Airlines for America said that it “estimates that about 222 million passengers will fly on U.S. airlines from June through August, up 4.5 percent from the same time last year,” according to Reuters.
Some of JETS’ largest holdings stand to benefit from increased demand for domestic flights while oil prices stay low enough to keep bolstering industry profits.
“Strong U.S. domestic demand is poised to benefit American Airlines Group (NasdaqGS: AAL), United Continental (NYSE: UAL) and Delta Airlines (NYSE: DAL),” Reuters reported.
Delta, American and United Continental, in that order, are three of JETS’ top four holdings, combining for nearly 35% of the new ETF’s weight. JETS is currently home to 30 airlines, including 18 that are based outside of the U.S., but with the ETF’s top four holdings, including Southwest (NYSE: LUV) combining for over 46% of the fund’s weight, JETS is heavily focused on U.S.-based carriers. [New Airline ETF Could be a Success]
JETS tracks the U.S. Global Jets Index, which is comprised of U.S. and international passenger airline companies, aircraft manufacturers and airports and terminal services companies. The universe of airline companies around the globe is screened for investability, a minimum market cap of $100 million and liquidity. The underlying index will hold between 30 and 35 airline companies. [Fly Into an Inexpensive Industry]
Airlines and JETS also have the benefit of being considered cyclical plays, which are inexpensive at the moment. Cyclicals are trading around a 16 times forward earnings and provide better exposure to a growing economy if gross domestic product picks up. In contrast, the recent slowdown has pushed more people into defensive stocks, which are now trading at around 19 times forward earnings. The S&P 500 Airlines Index recently traded at 7.7 times forward earnings, near a 19-year low of 7.3.
US Global Jets ETF