Investing in airline exchange-traded funds (ETFs) can be a smart way to gain access to stocks of companies in the industry. The best airline ETFs have high assets and low expenses, compared to similar funds in the industry. It’s important to know how these sector funds work before you put money into any that focus on just one sector.
What Are Airline ETFs?
Airline ETFs invest mostly in the stocks of airlines or related companies. These may include those involved in passenger services, manufacturing, air freight and logistics, and airport services.
Examples include Delta Airlines (DAL), United Airlines (UAL), and American Airlines (AAL).
Most airline ETFs track an index, which would include airline company stocks. The passive nature of index-based ETFs can provide low-cost access to a basket of securities, in contrast to putting your money into individual securities.
The Outlook for Airline ETFs
Consumer spending makes up nearly 70% of the U.S. economy. The performance of many airline stocks often depends upon the financial health and sentiment of consumers.
People are more likely to buy goods and services that aren't necessities when they're in a spending mode. This includes travel. The airline industry is a part of the broader transportation sector as well as the consumer cyclical sector. Both rise and fall with upswings and recessions.
Travel isn't a must for most consumers, so airline stocks are more likely to grow when the economy is strong. That makes it a cyclical stock. These stocks may not perform as well as the overall stock market when the economy is slow or weak.
Cyclical stocks—such as airline stocks—could see smaller returns from year to year if the economy decelerates. Buyers reduce their discretionary spending when this happens, but airline ETFs can still be a part of a diversified long-term portfolio.
The Best Airline ETFs
The best airline ETFs have a mix of strong exposure to the industry. They also have low expenses. These key characteristics could point to quality ETFs that can closely track the performance of their underlying index.
Here are some of the best airline ETFs to buy:
U.S. Global Jets ETF (JETS)
JETS is the only ETF that holds only airline stocks. It's heavily invested in U.S.-based airlines, including DAL and UAL. JETS tracks the Global Jets Index, which features a mix of U.S.-based and international airline stocks. It adds a few airline manufacturers, air-cargo suppliers, and other air-related stocks for diversification.
The fund was created in 2015. That’s enough history to attract assets and to review performance. Three years would be ideal. Expenses are 0.60, or $60 per year per $10,000 invested.
iShares Transportation Average ETF (IYT)
IYT is one of the best ETFs if you want broader diversification within the sector while still gaining exposure to the industry as a whole. It tracks the Dow Jones Transportation Average Index. IYT consists of roughly 36% railroad stocks, 22% air freight and logistics, and around 17% in airlines. The remaining assets are in the trucking and marine subsectors.
Expenses are 0.42%, or $42 per year for every $10,000 invested.
SPDR S&P Transportation ETF (XTN)
Another sector ETF with a high volume of airline stocks, XTN tracks the S&P Transportation Select Industry Index. Its allocation to airline industry subsectors is about 26% airlines, 20% air freight and logistics, and 2.6% airport services. The balance of assets is in the trucking, railroads, and marine subsectors.
Expenses are lower than others at just 0.35%, or $35 per year per $10,000 invested.
The Bottom Line
Airline ETFs can be a smart way to gain direct exposure to the stocks of airline companies. You can invest in ETFs that hold airline industry stocks or the broader transportation sector. Investors are wise to maintain a diversified portfolio. Don't allocate all of your assets to just one sector.
Frequently Asked Questions (FAQs)
Which big airlines company is Warren Buffett investing in?
At one point, Warren Buffett's Berkshire Hathaway owned shares in American, Delta, Southwest, and United Airlines. However, Berkshire Hathaway sold its stake in all airliners in 2020 amidst the pandemic. As of summer 2021, Buffett's company has not added back any of those positions.
How many stocks are in the JETS airline ETF?
As of 2021, there are about 50 different airlines, airports, and related companies in JETS. The top 10 holdings, which make up more than 50% of the portfolio's weight, are Southwest, Delta, American, United, Allegiant, Alaska, Air Canada, SkyWest, Sun Country, and JetBlue.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.