Few segments of global financial markets suffered as much at the hands of the coronvirus pandemic as did airline equities.
When the health crisis morphed from epidemic to pandemic last year, global travel ground to a halt as as slew of governments around the world shuttered borders, barring entry of foreign travelers from countries with high rates of infection.
Not surprisingly, travel and leisure equities of all stripes proved vulnerable. Airlines were more rule than exception to that trend and investors repudiated the group due to bloated debt burdens and flimsy balance sheets that were exposed by the pandemic. Years of feasting on low interest-rate debt to fund buybacks and dividends sent airlines to the brink and, in some cases, into Uncle Sam’s arms for capital to survive the pandemic.
By May 2020, global governments spent $85 billion bailing out airlines – at least the second bailout for the industry just this century.
Fast-forward to today and with the reopening trade afoot and demand strong among consumers to get out explore the world again, airline exchange traded funds are again captivating investors’ attention. It’s a volatile industry highly dependent on vibrant economic growth and one where stock picking is difficult. With those points in mind, here are a few airline ETFs to consider.
U.S. Global Jets ETF (JETS)
The U.S. Global Jets ETF (JETS) is the lone dedicated airline ETF trading in the U.S. JETS is up 7.42% year-to-date and while that lags the broader market, it’s an arguably decent performance when factoring in the emergence of the delta variant of COVID-19 and the fact that many global tourist destinations – ones that represent high margin routes for carriers – are still employing travel restrictions or are off limits to foreigners altogether.
While owning JETS hasn’t been a picnic this year, it’s worth noting airlines – thanks to government assistance – have been somewhat resilient during the pandemic.
“As disruptive as the global health crisis has been, airline stocks have been recovering much faster than they did during the previous two crises, the 2007-2009 Great Recession and the double-whammy of 9/11 and the 2002-2004 SARS pandemic,” according to U.S. Global research.
One thing is clear: Investors are using JETS as a recovery/reopening idea. Last year, the ETF took in $2.25 billion in new assets and it’s added nearly $703 million this year.
ALPS Global Travel Beneficiaries ETF (JRNY)
The ALPS Global Travel Beneficiaries ETF (JRNY) is a new kid on the block, having debuted in September. As noted above, JETS is the only dedicated airline ETF, but JRNY’s offers ample air travel exposure while featuring other avenues to recovery in the global travel and leisure industry.
The new ETF follows the S-Network Global Travel Index. That benchmark includes companies engaged in booking and rental agencies, airlines and airport services, hotels, casinos, and cruise operators as well as high-end retailers, food and beverage firms and payment processors. In other words, JRNY allows investors to make a bet on airlines while maintaining some diversification. That methodology could be a plus for patient investors.
“Longer-term industry forecasts, however, point to strong underlying fundamentals and expectations for air travel demand to return to pre-pandemic levels within the next couple of years,” says Alerian analyst Roxanna Islam. “With returning strength in airline demand, hotels and the rest of the travel and leisure industry could benefit from the updraft, providing an opportunity for investors with a broad-based position in the travel industry.”
SonicShares Airlines, Hotels, Cruise Lines ETF (TRYP)
Like the aforementioned JRNY, the SonicShares Airlines, Hotels, Cruise Lines ETF (TRYP) is a new addition to travel and leisure ETF fray having debuted in June and it like the ALPS fund, TRYP is not a dedicated airline ETF. TRYP follows the Solactive Airlines, Hotels, Cruise Lines Index.
The rookie ETF has credibility as a dedicated airline ETF replacement strategy because, as of Aug. 31, 44.6% of its holdings are airline equities – by far the largest industry allocation in the new fund. Remember that prior to the pandemic, the global travel and leisure was soaring. Should that trend resume, TRYP could be ideally positioned to capitalize.
“The global travel and tourism industry is a barometer for the global economy and is represented by three important sectors: airlines, hotels and cruise lines. In 2019, industry-related spending was over $5 trillion,” according to SonicShares.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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