2020 Investing Guide for Airline ETFs

Learn More About Airline ETFs and Which Funds to Buy Now

woman explains to man holding tablet on private airplane
•••

EXTREME-PHOTOGRAPHER/Getty Images

Investing in airline ETFs can be a smart way for investors to gain access to stocks of companies in the airline industry. The best airline ETFs for 2020 will have a combination of high assets and low expenses, compared to similar funds investing in the airline industry. But before investing in funds that concentrate on one sector, it’s important to understand how these sector funds work. 

What Are Airline ETFs?

Airline ETFs are exchange-traded funds that invest primarily in stocks of companies in the airline industry, which may include those involved in passenger airline services, airliner manufacturing, air freight and logistics, airport services, and related companies in the transportation industry. Examples of airline industry stocks include names like Delta Airlines (DAL), United Airlines (UAL), and American Airlines (AAL).

Like most ETFs, airline ETFs typically track the performance of an underlying index, which in this case would include airline industry company stocks. The passive nature of index-based ETFs can provide low-cost access to a basket of securities, as opposed to investing in individual securities.

The Outlook for Airline ETFs in 2020

Consumer spending is nearly 70% of the US economy. This means that the performance of many airline stocks will often depend upon the collective financial health and sentiment of consumers. 

When consumers are in a spending mood, they are more likely to buy goods and services that are not necessities, such as long-distance travel. The airline industry is a part of the broader transportation sector, as well as the consumer cyclical sector for stocks. Cyclical stocks rise and fall with upswings and recessions, respectively. 

Since long-distance travel is not a necessity for most consumers, airline stocks have greater potential for growth when the economy is strong, hence the cyclical stock categorization. When the economy is slow or weakening, cyclical stocks may not perform as well as the overall stock market.

The outlook for the broader economy in 2020 is healthy; however, investors should note that the Federal Reserve has forecasted economic growth to slow as the year progresses. If consumers reduce discretionary spending as the economy decelerates, consumer cyclical stocks—such as airline stocks—could also see smaller returns compared to recent years. With that said, airline ETFs can still be a part of a diversified long-term portfolio of investments.

Best Airline ETFs to Buy in 2020

The best airline ETFs will have a combination of concentrated exposure to the airline industry and low expenses. These key characteristics could indicate 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 in 2020:

U.S. Global Jets ETF (JETS)

JETS is the only ETF that exclusively holds airline industry stocks, and is heavily invested in U.S.-based airline industry stocks, including DAL and UAL. JETS tracks the performance of the Global Jets Index, which features a mix of U.S.-based and international airline stocks, with a few airline manufacturers, air cargo suppliers and other air-related stocks for diversification. 

The fund was created in 2015, and that’s sufficient history to attract assets and review historic performance (three years’ minimum is ideal). Expenses are 0.60, or $60 in one year, for every $10,000 invested.

iShares Transportation Average ETF (IYT)

For investors wanting broader diversification within the transportation sector while still getting exposure to the airline industry, IYT is one of the best ETFs to do it. The portfolio tracks the Dow Jones Transportation Average Index. IYT consists of roughly 36% railroad stocks, 22% air freight and logistics, around 17% in airlines, and the remaining assets in trucking and marine sectors. 

Expenses are 0.42%, or $42 per year for every $10,000 invested. 

SPDR S&P Transportation ETF (XTN)

Another transportation sector ETF with a high concentration of airline industry stocks, XTN tracks the S&P Transportation Select Industry Index. Within XTN, allocation to airline industry sub-sectors is approximately 26% airlines, 20% air freight and logistics, and 2.6% airport services. The balance of assets is in trucking, railroads, and marine sub-sectors. 

Expenses are lower than others at 0.35%, or $35 per year for every $10,000 invested. 

The Bottom Line

Airline ETFs can be a smart way for investors to gain direct exposure to stocks of companies in the airline industry. To get this exposure, investors may invest in ETFs that hold airline industry stocks or the broader transportation sector, which includes airline industry stocks and other transportation industries. Investors are wise to maintain a diversified portfolio and not allocate all of their assets to one sector of the economy.

Disclaimer: The information on this site is provided for discussion purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities. 

Article Sources

  1. Federal Reserve Bank of St. Louis. "Shares of Gross Domestic Product: Personal Consumption Expenditures," Accessed March 5, 2020.

  2. U.S. Global Assets. "U.S. Global Jets ETF." Accessed March 5, 2020.

  3. iShares. "iShares Transportation Average ETF." Accessed March 5, 2020.

  4. State Street Global Advisors. "SPDR S&P Transportation ETF." Accessed March 5, 2020.