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Changes Are Coming For Airline ETF, Slight Reduction In Dependence on Top 4 US Carriers

ETF Professor

The U.S. Global Jets ETF (NYSE: JETS), the lone exchange-traded fund dedicated to airline equities, is set to undergo some changes that will slightly reduce the fund's exposure to the four largest domestic carriers.

What To Know

JETS follows the U.S. Global Jets Index, which typically includes 30 to 35 stocks. When that index rebalances in March, June, September and December, it assigns weights of 12% to the four largest U.S. carriers.

Currently, Southwest (NYSE: LUV), American Airlines (NASDAQ: AAL), Delta Air Lines (NYSE: DAL) and United Airlines (NASDAQ: UAL) combine for about 42% of the fund's weight.

JETS' next largest component doesn't command even 5% of the fund's weight, but the fund could be poised to become more diverse.

Why It's Important

In a recent filing with the Securities and Exchange Commission, U.S. Global notes the JETS index could include 39 companies going forward, potentially increasing its exposure to Canadian carriers while possibly lowering weights to the aforementioned quartet of US-based airlines.

“At the time of each reconstitution of the Index, each of the four largest U.S. or Canadian passenger airline companies, as measured primarily by their market capitalization and, to a lesser extent, their passenger load factor, receives a 10 percent weighting allocation of the Index,” according to the filing. “Each of the next five largest U.S. or Canadian passenger airline companies receives a 4 percent weighting allocation of the Index.”

Different criteria apply to the remainders of the benchmark's components.

“The remaining Airline Companies meeting the Index criteria are then scored based on multiple fundamental factors,” according to the filing. “Their score is primarily driven by their cash flow return on invested capital (CFROIC) with additional inputs based on sales per share growth, gross margins, and sales yield. Each of the five U.S. or Canadian companies with the highest composite scores receives a 3 percent weighting allocation of the Index, and each of the 25 non-U.S. and non-Canadian companies with the highest composite scores receives a 1 percent weighting allocation of the Index.”

What's Next

Time will tell if these changes are meaningful to JETS investors or if the alterations will draw more of a crowd. As it is, the ETF is doing plenty of that.

Last week, JETS gained more than 8%, putting an exclamation point on a month in which investors added nearly $265 million to the fund. Year to date, investors added $857 million to the airline ETF.

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