Are a group of retail investors about to get grounded?
Over the past two months, investors have plowed so much money into an exchange-traded fund with an out-of-favor investing thesis that it’s recently become one of only a handful of ETFs to reach $1 billion in assets under management.
The success for the US Global Jets ETF JETS, +6.99%, a fund that tracks commercial airline stocks, in the midst of global lockdowns that left air traffic still down by nearly 90%, raises questions about whether it could be a repeat of what happened in April when individual investors lost big on a fund that bets on the oil price.
“Some portion of this might be millennials using Robinhood to speculate, but if you look beyond 2020, you can be optimistic that the industry will recover,” said Dan Weiskopf, portfolio manager for Toroso Investments. “Using an ETF as a way to reflect that thesis offers a ton of upside.”
In fact, it’s very hard to know for sure who’s buying any ETF. As MarketWatch has previously reported, big institutional investors often buy shares of ETFs in order to sell them short — that is, to make a bet that prices will decline.
There are reasons to think that’s not the case here, Weiskopf said in an interview. Bloomberg data show that short interest on JETS is 1.7 million shares, a tiny sliver compared with the 63.2 million shares outstanding.
And a tracker of investing trends on Robinhood shows that nearly 30,000 investors on that platform have a JETS holding.
Robinhood accounts with JETS holdings, compared with its share price.
Robintrack
The recent interest flies in the face of the decision made by billionaire investor Warren Buffett to exit the airline trade altogether. But Weiskopf believes that’s not a fair comparison. While Buffett famously made some very lucrative bets on nearly distressed assets in the thick of a crisis, he still is a value investor with a particular risk threshold that supports a global conglomerate, not an individual who may be looking to speculate.
While JETS’s sponsor says that it “provides investors access to the global airline industry, including airline operators and manufacturers from all over the world,” it has a fairly concentrated portfolio. The top five holdings account for half the portfolio, with Southwest Airlines Co. LUV, +5.17% making up 12.2%, American Airlines Group Inc. AAL, +5.34% at 10.7%, and Delta Air Lines Inc. DAL, +7.42% accounting for 9.6%.
Since the market trough on March 23, JETS has climbed 36.9%, just trailing the 38.2% gain for the S&P 500 index SPX, +1.34%.
For the right investor, buying into JETS could be a great bet, Weiskopf said. “This industry is needed.” And while there’s good reason to believe the U.S. government wouldn’t let the airlines fail, things may not get that dire.
“I also think people want to be optimistic about something and why not this beaten-down group?” Weiskopf said.
Read:The ‘ANTs’ came marching: how have active, non-transparent ETFs performed so far?
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