Few segments of the equity market embody industry-level vulnerabilities to the novel coronavirus on par with airlines and the U.S. Global Jets ETF (NYSEARCA:JETS) is proof positive. At the height of the first wave of Covid-19 cases in the U.S., the JETS ETF lost roughly two-thirds of its value.
Fortunately, the story doesn’t end there. In fact, JETS is one of the more interesting stories from the world of exchange-traded funds this year. For years (it turned five in April), JETS’ primary claim to fame was being the only ETF dedicated to airline equities. To be fair, there were some decent annual performances during that time because the global economy was mostly sanguine. And U.S. carriers were able to exploit low interest rates to borrow cheaply, powering buybacks and dividends.
That largess came home to roost at the hands of the Covid-19 pandemic Major U.S. carriers were forced to scrap shareholder rewards to get cash from Uncle Sam just to stay alive. Additionally, some of the smaller international components in JETS have had flirtations with bankruptcy this year.
None of that is scaring investors, primarily in younger demographics, from embracing the ETF. As of Sept. 3, JETS has $1.61 billion in assets under management. This marks a staggering $1.40 billion that flowed into the fund this year.
JETS ETF: Ideal Contrarian Play
This year, JETS is a contrarian idea and that’s putting things mildly. Even with the financial assistance from the federal government, airlines are scrapping routes and, in some cases, eliminating staff to conserve capital.
Those are not signs of a healthy industry. Investors that are actively following individual airline names this year know that. It’s likely some of those investors are also getting acquainted with analysts’ expectations that the rosiest timeline for the industry looking its 2019 self again is 2022. But it’s more likely to be 2023.
Still, there’s something to the JETS contrarian story. Passenger air travel in the U.S. isn’t all the way back from the April lows, but on Aug. 30, the Transportation Safety Administration (TSA) screened 807,000 fliers, according to U.S. Global.
That represents a 36.5% jump from Aug. 29. As U.S. Global notes, there’s a 50-day moving average for TSA screenings and that Aug. 30 figure was well above that average.
“We believe a return to the post-pandemic high of 863,000 could spur a second wave of airline equity buying, making now a potentially opportune time to consider getting exposure,” said the JETS issuer.
Alright, so a critic could be compelled to say that amounts to the sponsor talking its book. JETS charges 0.60% per year, or $60 on a $10,000 investment. The bigger it gets, the more revenue is generated for the issuer.
That commentary from U.S. Global was issued during the first week of September, after investors poured nearly $203 million into JETS in August, indicating the ETF still has plenty of fans willing to wager on another rally.
Fuel for JETS
There are two important near-term catalysts that could foster more upside in airline equities. First, there’s Labor Day travel data. Labor Day travel is often of the driving variety, but air travel beats expectations, that’s an obvious win for JETS and its components.
Second, and this is the obvious big kahuna, is progress on getting a Covid-19 vaccine to market. That’s arguably the single most important variable for airline stocks over the near- to medium-term.
If that time frame becomes something along the lines of late in the fourth quarter or early next year, that’s a recipe for upside for the JETS ETF and the August inflows to the fund will easily be exceeded, perhaps in a matter of days.
On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Todd Shriber has been an InvestorPlace contributor since 2014.