This airline ETF is soaring as investor confidence grows

The U.S. Global Jets ETF is soaring amid investor optimism about states reopening their economies. Yahoo Finance's Akiko Fujita and ETF Trends CEO Tom Lydon discuss.

Video transcript

AKIKO FUJITA: It is now time for our ETF Report, brought to you by Invesco. And today, we are talking about airline ETFs. We've certainly seen those airline stocks pushing higher on increased activity as we see this reopening process play out. As always, we are joined by Tom Lydon. He is the ETF Trends CEO. Tom, good to talk to you.

TOM LYDON: You too, Akiko.

AKIKO FUJITA: Let's talk about airlines. Because, you know, we had a guest on yesterday who said, look, you want to just look at the value play right now. Whether you think that airlines are going to bounce back all the way from where they were pre-COVID, it's not going to be lower than it was-- it's not going to be lower a year from now. How are you looking at that space right now? More importantly, how should investors be viewing it?

TOM LYDON: Yeah, well, when your team brought this up-- first of all, I've got to say, I'm on the board of directors for US Global, which is the sponsor of the Jets ETF. So we've been at this for a while. The crazy thing is this ETF only had $30 million in it at the beginning of the year and just today passed $800 million. So I think the idea is this, airlines are not going away. And if we do have prolonged recession or shutdown around the world and the airlines aren't able to be profitable, many are banking that the government will step in and hold up these airlines until we get to a point where we can get back to normal travel.

And a lot of people bet against Warren Buffett. And so far, they appear to be right, including 30,000 shareholders over at Robinhood. And right now, however, we're still almost 60% off the highs. So although we've come back off the bottom pretty well, we've still got a long way to go.

AKIKO FUJITA: Yeah, never thought we'd hear so many investors talking about betting against Warren Buffett, but I've heard that line a few times this week. So how should we be viewing it, though? I mean, there's a lot of people who are going to be looking at this angle. Is now the time to get in? We've come off of two months of volatility. You know, the overall market is pushing higher. But is there an opportunity maybe down the line for airlines because the real pain simply hasn't been seen yet?

TOM LYDON: Well, there has been a lot of pain so far, for sure. The idea, though, is-- especially here we are in the summer months, things are starting to open up. We're here in Southern California. Restaurants are opening up. People are traveling a little bit more. We're actually seeing more people on planes. And the big question is, when we get to the fall, will we see kind of a resurgence of the virus? And that's what a lot of people are worried about.

The bottom line is, again, airlines aren't going away. It's not like we're going to shut down the airlines and start jumping on trains again. They'll eventually have to come back. And the question is, will they not be able to do it on their own? Will they have to have government support? Will they have to go through bankruptcy? Will they have to go through loans? All those things will probably happen or have the chance of happening at one point. However, all those that went in and bought this ETF recently have been rewarded, as airlines have bounced pretty well as the bottom for sure.

AKIKO FUJITA: So Tom, to your point, though, I mean, we talk about-- or we've been talking about these airlines as if they're kind of monolithic. But clearly, each one has their own challenges, in terms of where they stand in terms of the balance sheet. So what are, you know, some ETFs that people should be looking at in this space? And what should they be looking out for in terms of the names in the portfolio, given that so many of them have very diversified challenges?

TOM LYDON: Sure, so they're really-- in this ETF, Jets, they're the four horsemen. So you've got American, you've got United, Delta, and Southwest. They make up almost 50% of the portfolio. Other aspects of the portfolio are smaller airlines, airlines around the world like Ryanair or Hawaiian Airlines. They also have publicly-traded airports in there. Airport servicing companies are also in there. So as far as the airline industry, it's a little bit diversified. But granted, everybody's affected by this.

You could go in and look at the individual airlines themselves. And as you point out, they all have different structure. But overall, they've all been affected. It's crazy in this world to think that Zoom Technologies' market cap is bigger than the airline industry as a whole, being at $40 billion, and we don't have that among all the airlines put together. So with that in mind, knowing that air travel will return at one point in time and will get back to normal when this whole thing is over, it's not a bad diversification bet for those that are looking for that eventual rebound.

AKIKO FUJITA: OK, some good takeaways for investors looking at where to put their money. Tom Lydon, always good to talk to you.

TOM LYDON: You too. Thanks, Akiko.