The U.S. Global Jets ETF (NYSEArca: JETS) is up half a percent year-to-date, a decent showing when considering the struggles of broader transportation exchange traded funds and the recent public relations missteps by United Continental (NYSE: UAL), one of the largest holdings in JETS.
ETS, the only ETF dedicated to airline equities, is off almost 1% year-to-date and that stems from concerns that President Trump and the Republican-controlled congress are moving slowly on the widely anticipated tax reform effort.
Still, there are encouraging fundamental factors for airlines, including low oil prices. Fuel is the largest input cost for airlines. The improving U.S. economy could encourage more business and leisure travel and airlines are generating impressive amounts of cash.
However, there are concerns that airlines stocks will post tepid first-quarter earnings, potentially dragging the broader industrials sector lower in the process.
“From an S&P 500 earnings perspective, the Airlines industry is expected to report the largest year-over-year decline in earnings (-50%) of all 12 industries in the Industrials sector for Q1 2017. All five companies in this industry are expected to report a year-over-year decline in EPS, or have already reported a year-over-year decline in EPS for the quarter,” according to FactSet.
JETS follows a type of smart-beta index that screens for multiple fundamental factors, including cash return on invested capital (CROIC) with additional inputs based on sales per share growth, gross margins, and sales yield. The ETF includes a hefty tilt toward airlines, but it also holds aircraft manufacturers and airports & terminal services.
“In fact, this industry is the largest contributor to the expected year-over-year decline in earnings for the Industrials sector (-7.0%) this quarter. If the Airlines industry is excluded, the expected earnings decline for the sector would improve to -0.7% from -7.0%. At the company level, American Airlines Group and Delta Air Lines are the largest contributors to the earnings decline for the sector. The mean EPS estimate for American Airlines Group for Q1 2017 is $0.54, compared to year-ago EPS of $1.25. Delta Air Lines reported actual EPS of $0.77 for Q1 2017, compared to year-ago EPS of $1.32,” according to FactSet.
JETS follows the U.S. Global Jets Index, which uses fundamental screens to select airline companies, with an emphasis on domestic carriers, along with global aircraft manufacturers and airport companies.
For more information on airliners, visit our Airline category.