This ETF Booms as Investors Bet on Airlines
01 June 2020 - 2:29AM
Dow Jones News
By Mischa Frankl-Duval
Investors looking to bet on the recovery of the global airline
industry have poured hundreds of millions of dollars into a
previously small exchange-traded fund over the past three months,
bringing its assets under management to almost $1 billion.
The U.S. Global Jets ETF held around $33 million in assets in
early March, according to FactSet, but now holds about $950
million. The fund has had net inflows for 62 consecutive trading
days, according to FactSet, despite its price falling sharply
during that period.
"It was just unprecedented volume explosion," said Frank Holmes,
chief executive and chief investment officer of investment
management firm U.S. Global Investors. He said strong interest from
individual investors, as well as from hedge funds looking to hedge
trades in individual airlines, boosted flows.
The fund, which trades under the ticker JETS, holds about 40% of
its assets in the four largest U.S. airlines, Southwest Airlines
Co., Delta Air Lines Inc., American Airlines Group Inc. and United
Airlines Holdings Inc., with smaller stakes in other U.S. and
international carriers. The fund also invests in companies that
make equipment for planes and airport operators.
The ETF allows investors to bet on the broad recovery of an
industry that has been among the hardest hit by the coronavirus
pandemic, instead of forcing investors to bet on specific
airlines.
It also pits the investors against Warren Buffett, Berkshire
Hathaway Inc.'s chief executive, who sold major stakes in the four
biggest U.S. carriers earlier this year.
Shares in major U.S. airlines have tumbled after the coronavirus
pandemic decimated air traffic. Despite a recent rally off their
lows, those stocks remain sharply lower so far this year. It isn't
clear how willing passengers will be to fly when the pandemic
subsides -- or when that will be.
Still, some investors think the airline industry has been
oversold and have bought the JETS ETF to profit from its
recovery.
"It is certainly the type of investment you make knowing that
the consensus is against you, at least it was at the time we were
buying in, " said Keith DeGreen, CEO of Scottsdale, Ariz.-based
DeGreen Capital Management LLC.
The firm first took a position in the fund in early March and
"continued to buy JETS every time we had the opportunity," he said.
The firm, which manages around $230 million for about 280 families,
now holds a $6.9 million position at an average price of $18.24 a
share, he said.
"I don't think it takes a lot of extremely sophisticated
analysis to recognize that this is a particular sector that got
sold off in panic, that it's going to come back," said Mr.
DeGreen.
The ETF's multiplicity of holdings allowed Mr. DeGreen to bet on
the recovery of the industry without investing in just one name. A
number of individual investors have made the same calculus,
choosing to spread their bets on a variety of airlines.
It is difficult to know with any certainty who owns shares in an
ETF at any one time, but some data suggest the fund has been
popular with individual investors. The number of investors holding
JETS in their accounts at investing platform Robinhood,for example,
has risen to almost 28,000 from around 360 at the start of March,
according to Robintrack, which follows the popularity of stocks on
the platform. While Robinhood confirmed that around 28,000 people
are currently invested in the ETF, it declined to say how many
customers were invested in the JETS fund in early March.
Gabriel Mercado, a 23-year-old real-estate agent from Cleveland,
said he bought around $1,000 worth of JETS recently after hearing
about it from a friend. He sold his shares on Friday, anticipating
that civil unrest in the U.S. could negatively affect their value,
but plans to buy back in when the situation stabilizes, he
said.
"I didn't want to make the mistake of buying one airline company
or two airline companies where they're not running a tight
financial ship," Mr. Mercado said. "The natural diversification of
the ETF is gonna allow me to kind of spread out my risk a little
more," he said.
(END) Dow Jones Newswires
May 31, 2020 12:14 ET (16:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.