First-Ever Airlines ETF Set for Takeoff

Claymore Securities is digging into the battered transportation sector more with plans to launch the first exchange-traded fund focusing on the airlines industry.

Next month, the ETF provider says the Claymore/NYSE Arca Airline ETF should be ready to trade. The announcement comes after Claymore earlier this year launched the Claymore/Delta Global Shipping ETF (NYSE Arca: SEA).

Both ETFs fit within the area of transportation portfolios, of which there are only a handful of ETFs. The biggest is the iShares Dow Jones U.S. Transportation (NYSEArca: IYT). IYT is the only transportation ETF with a significant level of assets.

The first-mover advantage does exist for the airlines ETF (as it did in the case of SEA), since there is no airline-specific ETF in the U.S.

Claymore's SEA has not seen the type of early success that would necessarily promulgate the launch of a second transportation portfolio based on first-mover status. SEA had $10.4 million in assets through Dec. 10.

The other transportation ETF launched this year, the Invesco PowerShares Capital Management Global Progressive Transportation Portfolio (NasdaqGM: PTRP), has about $1.8 million in assets. IYT, on the other hand, has $420 million in assets.

SEA and PTRP are probably more like each other in focusing on Industrials and Energy than either is like the planned global airlines ETF.

What's more, while airlines are the fifth-largest sector weighting in IYT, representing 6.4% of the ETF, that weighting is spread across just four major U.S. airlines: AMR Corp. (AMR), JetBlue Airways (JBLU), Southwest Airlines (LUV) and Continental Airlines (CAL).

The Claymore planned ETF is a pure-play passenger airline ETF. It will hold 24 global airline stocks, 70% domestic and 30% international. The top three stocks in each category will be weighted 15% in the case of domestic, and 4.5% in the case of international airlines. That puts the remaining index weights for the 18 other stocks in the ETF at 25% for domestic and 16.5% for international. All holdings must derive at least 50% of their business from passenger airline activity.

With oil reaching new lows, and the major shakeout in the industry already having occurred, there are fewer planes being flown by consolidated carriers, and the price of oil is no longer single-handedly poised to bankrupt carriers. Overall industry projections expect losses in 2009, but much lower than this year's performance for the major airlines.

What all four ETFS have in common is a concentrated portfolio approach. SEA holds just 30 stocks, PTRP has 39 stocks and IYT only has 21 portfolio holdings, compared with the underlying NYSE Arca airline index of 24 stocks.

The proposed ticker symbol and the ETF's expense ratio were not included in the initial filing.

You can read the prospectus here.

• More on choosing the right ETF

Comments

[User 283977:]

So the industry thinks losses in 2009 are going to be much lower than this years performance... Yes fuel costs are down, but the Economy has hit a major downburst... that should translate into a lot less business travel, and that is where the Airlines make most of their money... as for personal travel, I don't think all the people that are going to end up unemployed are going to be buying airline tickets. I suspect some consolidation is going to occur along with significant layoffs. I wish things looked better...

2008 Dec 11 03:37 PM

[k9s-4-k8:]

Talkin' bout an ETF that's prone to crash and burn!

Sorry I couldn't help myself.

2008 Dec 11 07:25 PM

[Mike Havrilla:]

A Short ETF for the airlines may have been a better idea:
www.etfinnovators.com/...


On Dec 11 07:25 PM k9s-4-k8 wrote:

> Talkin' bout an ETF that's prone to crash and burn!
>
> Sorry I couldn't help myself.

2008 Dec 11 08:51 PM

[bearfund:]

Why would anyone bother with a long airlines ETF? This is a great industry to short, or at most to pair a short ETF with a long position in the broad market.

In fact what we really need a very trivial ETF: long the entire market, but short airlines and retailers. Perfect for the long-term investor looking for a low-cost holding that's guaranteed to beat "the market".

2008 Dec 11 10:29 PM

[Allah:]

I agree the outlook is terrible for the airlines, but the more sectors of the economy covered by etfs, the better for us Joe Schmo investors..

2008 Dec 11 11:48 PM

[Ralph F:]

Any info on expense ratios?

2008 Dec 14 03:05 AM

[Saffie:]

Airlines will be the first to recover in 2009. Technical charts show basing is over and some are up 100% from their lows. So as a true contrarian - its all go airlines. Hows that folks?

Jan 18 11:27 AM

[Saffie:]

Yep. I must agree. The airlines were the first to tank and will be the first to recover in 2009. Technicals show 4th phase basing is over and the 1st phase of a new bull market is just on its way. Some airline stocks are already up way over 100% from their lows. Thats what the charts tell me, not what I want the charts to tell me. Happy flying folks.

Jan 18 11:31 AM