Investing in airline ETFs can be a smart way for investors to get access to stocks in airline companies. The best airline ETFs will have a combination of high assets and low costs when compared to similar funds investing in the airline industry.
However, before investing in funds that focus on any sector, it is important to understand how these sector funds work.
ETF investing is generally a good strategy. When you start researching ETFs, you will find that there is an ETF for everything and this content will furnish you with information on the best and most affordable airline ETF.
What is Airline ETFs?
Airline ETFs are exchange-traded funds that invest primarily in stocks of companies in the aviation industry, including companies involved in passenger airline services, aircraft manufacturing, air cargo and logistics, airport services, and related companies in the transportation industry.
An airline exchange-traded fund (ETF) can offer diversified exposure to the aviation industry.
Examples of stocks in the aviation industry include names like Delta Airlines (DAL), United Airlines (UAL), and American Airlines (AAL).
Like most ETFs, airline ETFs usually track the performance of an underlying index, which in this case includes shares of companies in the aviation industry.
The passive nature of index-based ETFs can provide inexpensive access to a basket of securities rather than investing in individual securities.
Why should I invest in Airline ETFs?
There are many reasons to invest in airline ETFs. The aviation industry is relatively undervalued, and with more people flying than ever before, the potential for growth is enormous.
Around 44,000 flights take off in the USA every day. Last year, around 1 billion passengers were handled at US airports. Internationally, this number is closer to 4 billion. As fares keep getting cheaper, airlines serve more passengers and make higher profits
The International Air Transport Association estimates the aviation industry will generate $35.5 billion in profits this year. They also expect the number of passengers to rise to 8.2 billion by 2037.
Airline ETFs are a great way to participate in the growth of the aviation industry. Plus, you are not prone to losses from certain airlines. Overall, the aviation industry was hugely profitable. In fact, it’s been profitable for 10 consecutive years. And the aviation industry should continue this profitable trend.
Any investor would be wise to pursue the aviation industry.
How prospective are Airline ETFs in 2022?
Consumer spending makes up nearly 70% of the US economy. This means that the performance of many airline stocks is often dependent on the collective financial health and mood of consumers.
When consumers are in the buying mood, they are more likely to buy goods and services that are not necessary, such as: Long-distance travel. The aviation industry is part of the broader transportation sector as well as the cyclical consumer sector for stocks. Cyclical stocks rise and fall with an upswing or a recession.
The outlook for the overall economy in 2021 is healthy; However, investors should note that the Federal Reserve has forecast a slowdown in economic growth for the current year.
If consumers cut their discretionary spending when the economy slows, cyclical consumer stocks – such as airline stocks – could also achieve lower returns compared to recent years. Even so, airline ETFs can still be part of a diversified long-term investment portfolio.
What are the Best Airline ETFs to buy?
The best airline ETFs offer a combination of concentrated exposure to the airline industry and low costs. These key features could indicate high-quality ETFs that can accurately track the performance of the respective underlying index.
With that in mind, here are some of the best airline ETFs to buy:
U.S. Global Jets ETF (JETS)
JETS is the only ETF that exclusively holds shares in the aviation industry and is heavily invested in stocks in the US aviation industry, including DAL and UAL.
JETS tracks the performance of the Global Jets Index, which contains a mix of US and international airline stocks as well as a few airline manufacturers, airfreight suppliers, and other air-related stocks for diversification.
The fund was established in 2015. This is enough to attract assets and check historical performance (a minimum of three years is ideal). Spending is $0.60 or $60 in a year for every $10,000 invested.
- Issuer: US Global Investors
- Net worth: $51 million
- YTD performance: + 2.62%
- Expense ratio: 0.6%
- Price: $28
The US Global Jets ETF is the only ETF that exclusively tracks airline stocks. It is a newer fund that has only been on the market since April 30, 2015.
This is the fund for you if you want to limit your focus to airlines like Delta or United. This ETF is largely made up of airline stocks but also tracks aircraft manufacturers, terminal services, and airports.
Delta Air Lines makes up the largest percentage of the fund at almost 13%.
Other top positions include United Airlines, Southwest Airlines, American Airlines, Allegiant Travel (Nasdaq: ALGT), Alaska Air (NYSE: ALK), JetBlue Airways, Spirit Airlines (NYSE: SAVE), and General Dynamics (NYSE: GD).
Since its inception in 2015, the US Global Jets ETF has returned 5.4%. For investors looking for airline exposure, this is the airline-only ETF you have been looking for.
For investors who want broader diversification within the transportation sector while also wanting exposure to the aviation industry, IYT is one of the best ETFs to do so.
The portfolio tracks the Dow Jones Transportation Average Index. IYT consists of around 36% railway stocks, 22% air freight and logistics, around 17% airlines, and the remaining assets are trucking and shipping.
Spending is 0.42% or $42 per year for every $10,000.
- Issuer: iShares
- Net worth: $ 517 million
- YTD performance: + 14.81%
- Expense ratio: 0.42%
- Price: $ 182
The iShares Transportation Average ETF tracks the Dow Jones Transportation Average Index and several other transportation stocks selected by the Dow Jones Average Committee.
This means that in addition to the aviation sector, the company also operates in the rail, freight, truck, and ship sectors. The aviation sector makes up around 18% of the ETF.
The iShares Transportation Average ETF includes some of the best airline stocks: Southwest Airlines (NYSE: LUV), Alaska Air Group (NYSE: ALK), United Airlines (Nasdaq: UAL), Delta Air Lines (NYSE: DAL), and American Airlines (Nasdaq: AAL) and JetBlue Airways (Nasdaq: JBLU).
Since its inception in 2003, this ETF has outperformed the benchmark by 10%. With a low expense ratio and a wide range of assets, the iShares Transportation Average ETF is a solid airline ETF.
SPDR S&P Transportation ETF (XTN)
XTN is another ETF for the transportation sector with a high concentration of shares in the aviation industry and tracks the S&P Transportation Select Industry Index.
Within XTN, the allocation to sub-sectors of the aviation industry is approximately 26% airlines, 20% air freight and logistics, and 2.6% airport services.
The balance of assets lies in the truck, rail, and shipping subsectors. Spending is 0.35% or $35 per year per $10,000 lower than others.
- Issuer: State Street SPDR
- Net worth: $133 million
- YTD performance: + 5%
- Expense ratio: 0.35%
- Price: $59
The SPDR S&P Transportation ETF tracks the S&P Transportation Select Industry Index. The stocks in this index are US transportation companies selected from the broader S&P Total Market Index.
The fund is heavily weighted in truck stocks at around 34%. At 24%, airline shares make up a significant part of the fund.
This ETF holds around 80% of its assets in companies from the S&P Transportation Select Industry Index. The other 20% will be used for non-transportation assets to help diversify the fund’s holdings.
In general, however, the returns on the SPDR S&P Transportation ETF should be in line with the returns on the S&P Transportation Select Industry Index.
Since its inception in 2011, this has achieved a return of 12%. The SPDR S&P Transportation ETF is an airline ETF with low volatility and solid growth prospects.
Conclusion
Airline ETFs can be a smart way for investors to invest directly in stocks of companies in the aviation industry.
To get this exposure, investors can invest in ETFs that hold stocks in the aviation industry or in the broader transportation sector that includes stocks in the aviation industry and other transportation industries.
Investors should maintain a diversified portfolio and not allocate all of their assets to one industry.
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