By Mischa Frankl-Duval 

Investors looking to bet on the recovery of the global airline industry have poured hundreds of millions of dollars into a previously small exchange-traded fund over the past three months, bringing its assets under management to almost $1 billion.

The U.S. Global Jets ETF held around $33 million in assets in early March, according to FactSet, but now holds about $950 million. The fund has had net inflows for 62 consecutive trading days, according to FactSet, despite its price falling sharply during that period.

"It was just unprecedented volume explosion," said Frank Holmes, chief executive and chief investment officer of investment management firm U.S. Global Investors. He said strong interest from individual investors, as well as from hedge funds looking to hedge trades in individual airlines, boosted flows.

The fund, which trades under the ticker JETS, holds about 40% of its assets in the four largest U.S. airlines, Southwest Airlines Co., Delta Air Lines Inc., American Airlines Group Inc. and United Airlines Holdings Inc., with smaller stakes in other U.S. and international carriers. The fund also invests in companies that make equipment for planes and airport operators.

The ETF allows investors to bet on the broad recovery of an industry that has been among the hardest hit by the coronavirus pandemic, instead of forcing investors to bet on specific airlines.

It also pits the investors against Warren Buffett, Berkshire Hathaway Inc.'s chief executive, who sold major stakes in the four biggest U.S. carriers earlier this year.

Shares in major U.S. airlines have tumbled after the coronavirus pandemic decimated air traffic. Despite a recent rally off their lows, those stocks remain sharply lower so far this year. It isn't clear how willing passengers will be to fly when the pandemic subsides -- or when that will be.

Still, some investors think the airline industry has been oversold and have bought the JETS ETF to profit from its recovery.

"It is certainly the type of investment you make knowing that the consensus is against you, at least it was at the time we were buying in, " said Keith DeGreen, CEO of Scottsdale, Ariz.-based DeGreen Capital Management LLC.

The firm first took a position in the fund in early March and "continued to buy JETS every time we had the opportunity," he said. The firm, which manages around $230 million for about 280 families, now holds a $6.9 million position at an average price of $18.24 a share, he said.

"I don't think it takes a lot of extremely sophisticated analysis to recognize that this is a particular sector that got sold off in panic, that it's going to come back," said Mr. DeGreen.

The ETF's multiplicity of holdings allowed Mr. DeGreen to bet on the recovery of the industry without investing in just one name. A number of individual investors have made the same calculus, choosing to spread their bets on a variety of airlines.

It is difficult to know with any certainty who owns shares in an ETF at any one time, but some data suggest the fund has been popular with individual investors. The number of investors holding JETS in their accounts at investing platform Robinhood,for example, has risen to almost 28,000 from around 360 at the start of March, according to Robintrack, which follows the popularity of stocks on the platform. While Robinhood confirmed that around 28,000 people are currently invested in the ETF, it declined to say how many customers were invested in the JETS fund in early March.

Gabriel Mercado, a 23-year-old real-estate agent from Cleveland, said he bought around $1,000 worth of JETS recently after hearing about it from a friend. He sold his shares on Friday, anticipating that civil unrest in the U.S. could negatively affect their value, but plans to buy back in when the situation stabilizes, he said.

"I didn't want to make the mistake of buying one airline company or two airline companies where they're not running a tight financial ship," Mr. Mercado said. "The natural diversification of the ETF is gonna allow me to kind of spread out my risk a little more," he said.

(END) Dow Jones Newswires

May 31, 2020 12:14 ET (16:14 GMT)

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