The U.S. Global JETS ETF Is a Controversial Pick That Will Pay Off


The airline industry is one of this year’s epicenters for equity retrenchment at the hands of the novel coronavirus. Just look at the U.S. Global Jets ETF (NYSEARCA:JETS). The JETS ETF, the lone exchange-traded fund dedicated to airline equities, is lower by 57.50% year-to-date.

The JETS ETF Is a Controversial Pick That Will Eventually Pay Off

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Perhaps the more troubling statistic is that JETS isn’t showing much movement off its March lows. Its approximate-17% gain off those levels is roughly half the move notched by the less risky S&P 500 over the same period.

Currently, the best thing that can be said about the JETS ETF and its components is that these are contrarian ideas because it’s difficult to find positive news about the industry. If the price action among the major carriers doesn’t convince investors about that, stocks such as Boeing (NASDAQ:BA) and General Electric (NYSE:GE) probably should.

GE, one the largest builders of aircraft engines, recently swooned to a three-decade low as experts speculate it will take several years for the airline industry to resemble its pre-coronavirus self. Carriers are scrapping routes, grounding jets and canceling orders for new equipment — all signs that Covid-19 is materially impacting the economically sensitive airline industry.

Been Here Before

“Good news” is in the eye of the beholder when it comes downtrodden names, such as American Airlines (NASDAQ:AAL), Delta Air Lines (NYSE:DAL), Southwest Airlines (NYSE:LUV) and United Airlines (NASAQ:UAL), but there is some.

Those companies, which combine for about 40% of the JETS roster, are eligible for government assistance under the CARES Act, something some members of the quartet are taking Uncle Sam up on. That news has been out in the market for awhile, but it’s also worth remembering that if there’s an industry that’s familiar with navigating crises, it’s airlines.

“The decline in demand as a result of the spread of COVID-19 could end up being double the decline from the severe acute respiratory syndrome (SARS) epidemic in 2002 and 2003, according to travel research firm Tourism Economics,” said U.S. Global, JETS’ issuer, in a research note. “This implies 16 million lost passengers, which is more than the multi-year impact following the 9/11 terrorist attacks.”

Yes, there was some government assistance involved following 9/11, but in the span of essentially a few months, airlines grappled with the worst terrorist attack on record and a pandemic (SARS) and eventually emerged stronger. History doesn’t always repeat, but it often rhymes and even before Covid-19, air travel established a history of suffering big bruises during crises only to later emerge stronger.

Since 1980, passenger carries dealt with at least two oil crises, the 1991 Gulf War, which sent crude prices soaring, 9/11, SARS and the global financial crisis.

“[Covid-19] is not the first major headwind that global airlines have been up against,” notes U.S. Global. “The truth is that air travel has proved to be remarkably resilient to many external shocks, whether they be oil crises, wars, terrorist attacks or, yes, pandemics.”

Focusing on some near-term green shoots, United and Southwest recently said they are experiencing fewer cancellations for July. Obviously, there’s a difference between decreasing cancellations and increasing bookings, but at this point in the coronavirus cycle, airlines’ recovery has to start somewhere and perhaps pared cancellations is the place.

The Bottom Line on the JETS ETF

There are some other anecdotes bolstering the case for JETS, including the fact that the oversold condition on the NYSEARCA Global Airlines Index is currently reminiscent of what was seen in late September 2001.

Additionally, airlines stocks have a propensity to rebound rapidly from their biggest slides. Over the past 11 years, the three largest slumps notched by the NYSEARCA Global Airlines Index were followed by average rallies of 93% and in all three instances, it took less than two years for that upside to materialize.

No guarantees JETS is primed for that type of upswing again, but the ETF eliminates the burden of picking the best idea in a troubled industry and any incremental good news, be it about the economy or industry itself, could stir near-term gains for the airline fund.

Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.

Todd Shriber has been an InvestorPlace contributor since 2014.

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