Short Covering Helps Airline ETF

With Warren Buffett’s investment of over $1.2 billion into American Airlines, United Continental Holdings, Delta Air Lines and Southwest Airlines, airline stocks are taking flight. The move was a shocking reversal for Buffet, whom has shunned the industry for decades following a volatile investment in U.S. Airways in 1989.

“Since Berkshire reported their airline holdings, short interest in the airline sector is down $544 million in the last month,” according to an S3 Partners note posted by Ben Levisohn of Barron’s. “Short interest has decreased from $6.62 billion to $6.08 billion with most of the short interest concentrated in the top four airlines. $4.3 billion, or 70%, of airline sector short interest is in American, Delta, Southwest and United airlines – the same four airlines that have large common institutional long shareholders.”

In order, United Continental, Southwest, Delta Airlines and American Airlines are the top four holdings in JETS and combine for over half the ETF’s weight.

“Investors like Blackrock, Vanguard, Prime Capital and Berkshire do not invest in one hit wonders, they invest in industries that are poised for longer term growth and price appreciation,” according to the S3 note posted by Barron’s. “Short sellers have noticed and have begun trimming their exposure – we can expect more buying to cover in the near future.”

For more information on airline ETFs, visit our Airline category.