Expect Higher Profits For This ETF's Holdings

The U.S. Global Jets ETF JETS, the lone exchange traded fund dedicated to airline stocks, is down 8.6 percent year-to-date, a decline that is not surprising when remembering the often negative correlation of airline equities to oil prices. The United States Oil Fund USO, which tracks West Texas Intermediate futures, is higher by 7.8 percent this year.

While the performance delivered by JETS to this point in the year is not going to impress anyone, a case can be made that investors should be too hasty in departing the ETF and airline stocks. Not when oil prices are still well below their 2014 highs and certainly not a time when many of the 34 holdings in JETS are expected to post rising profits.

“Net profit across the sector is likely to reach $39.4 billion in 2016, extending a record result set last year, when carriers generated collective proceeds of $35.3 billion, the International Air Transport Association said Thursday at its annual gathering of airline chief executive officers, held this year in Dublin,” according to Bloomberg. 

The underlying index for JETS, the U.S. Global Jets Index, “uses a smart beta strategy to track the global airline industry. The index uses fundamental screens to determine the most efficient airline companies” according to US Global.

The IATA data cited by Bloomberg indicate that Africa will be the world's only region where airlines will not be profitable this year. That is a non-event for JETS because the ETF allocates over 79 percent of its weight to U.S. carriers. At the end of April, Canadian and U.K. carriers each accounted for more than three percent of the ETF's weight.

JETS is a top heavy ETF as its top four holdings – Southwest Airlines Co. LUV, Delta Airlines Inc. DAL, American Airlines Group Inc. AAL and United Continental Holdings Inc. UAL – combine for nearly 45 percent of the ETF's weight. No other stock commands of weight of five percent in JETS.

“Last year’s profit was $2.3 billion higher than suggested earlier, and more than double 2014’s $17.4 billion. Traffic growth was the most since the post-slump rebound of 2010, and planes flew more than 80 percent full,” according to Bloomberg.