It had been nearly two years since investors had a dedicated airline exchange traded fund to consider, but the U.S. Global Jets ETF (NYSEArca: JETS) changed that when it debuted in late April. With profits soaring and valuations low, now could be the time for advisors and tactical investors to consider examining JETS.
On the upcoming webcast, Why Airline stocks May Still Have Room to Fly: It’s Not Just About Oil, scheduled for 2PM Eastern Time on Thursday June 18, U.S. Global Investors CEO and Chief Investment Officer Frank Holmes and Cowen & Co. Managing Director Helane Becker will join ETF Trends publisher Tom Lydon to explore the airline industry’s investment landscape.
Earlier this month, the International Air Transport Association (IATA) “announced an upward revision of its 2015 industry outlook to a $29.3 billion net profit. On expected revenues of $727 billion, the industry would achieve a 4.0% net profit margin. The significant strengthening from the $16.4 billion net profit in 2014 (re-stated from $19.9 billion) reflects the net impact of several global factors, including stronger global economic prospects, record load factors, lower fuel prices, and a major appreciation of the US dollar,” according to Briefing.com.
That robust profit outlook for airline stocks coincides with low valuations. “Analysts expect revenue growth to decelerate sharply to just 2.3% in 2015 from 23.6% last year, but think earnings growth will surge to 98.6% from 27.1%. The P/E of 7.7 is near early April’s 19-year low of 7.3, and its 55% discount to the market is at a 14-year low,” according to Yardeni Research. [Why the new Airline ETF Could be a Success]
JETS’ underlying index shows a forward price-to-earnings ratio of about 9. In contrast, the S&P 500 index is trading near a 18.6 P/E.
JETS tracks 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. [New Airline ETF Takes Off]
Of course, oil, airlines’ largest input cost, is a pivotal part of the JETS story. Deutsche Bank “estimates that nearly 110 percent of the earnings gain will derive from lower fuel prices. It states that ‘the industry over the past several years has demonstrated its ability to successfully offset most, if not all, of the rise in fuel expense via a combination of cost savings and various revenue initiatives,’” according to U.S. Global Investors.
However, there is more to the JETS story, including increasing shareholder rewards. In May, Delta (NYSE: DAL) and Southwest announced dividend increases and buyback expansions. American Airlines (NasdaqGS: AAL) introduced a dividend last year.
Delta, Southwest and American combine for 32.5% of JETS’s weight. The new ETF is off to an impressive start with $35.7 million in assets under management in just seven weeks on the market.
Financial advisors who are interested in learning more about airline investing and JETS can register for the Thursday June 18 webcast here.