Texas-based investment adviser US Global Investors is set to launch Europe’s first ETF providing exposure to the global airline industry.
The US Global Jets UCITS ETF will list on London Stock Exchange later in June and will be available in US dollar (JETS LN) and pound sterling (JETP LN) share classes.
The fund, which replicates the strategy of the $4 billion NYSE Arca-listed US Global Jets ETF (JETS US), is coming to market via London-based HANetf’s white-label ETF platform.
Pre-Covid, airline companies were thriving as carriers streamlined their operations, improved their balance sheets, and grew profits by introducing more ancillary (non-ticket) fees.
The coronavirus disrupted the industry enormously with the US-listed JETS nosediving 60% between 20 February and 20 March 2020.
As the pandemic slows, the vaccine rollout picks up momentum, and the global economy re-opens, the US Global Jets UCITS ETF offers investors a vehicle to capitalize on the regeneration of the airline industry.
By offering exposure to airline companies worldwide, the fund also delivers a long-term play on the growth of the middle class in the developing world, arguably one of the most important factors in the rise of global air travel demand.
The funds’ underlying reference is the US Global Jets Index which selects its constituents from a global universe of companies with market capitalizations greater than $100 million. Eligible firms include those within the commercial airline, aircraft manufacturing, and airport and terminal industries.
The largest four US passenger airline companies (American Airlines, United Airlines, Southwest Airlines, and Delta Air Lines) receive weights of 10% each in the index, while the eight next-largest passenger airline companies listed in either the US or Canada are weighted at 3% each.
The remaining companies are then scored based on a fundamental factor composite score that incorporates cash flow return on invested capital, sales per share growth, gross margins, sales yield, and liquidity.
The eight US or Canadian companies with the highest composite scores receive weights of 2% each, the ten non-US companies with the highest composite scores receive weights of 1% each, and the 20 non-US companies with the next highest composite scores receive weights of 0.5% each. Reconstitution and rebalancing occur on a quarterly basis.
Over two-thirds (69.5%) of the index is allocated to stocks from the US with the next-largest country exposures being Canada (6.5%), China (6.1%), Mexico (3.8%), Japan (3.0%), and Turkey (2.4%).
The ETF is set to come with an expense ratio of 0.65%.
Frank Holmes, CEO and CIO of US Global Investors, said: “Here in the US, leisure travel is steadily recovering as the total number of vaccines administered approaches 300 million. The EU, on the other hand, has administered roughly 200 million vaccines as of May 17 while daily new infections are dropping but remain elevated compared to the US. Therefore, we still believe there is great upside potential in terms of European commercial flight demand, especially now that EU officials have agreed that member states should start allowing fully vaccinated foreigners to visit.
“Like US investors, Europeans are signaling that they want investment vehicles that seek to capitalize on the reopening of the global economy. According to the European Fund and Asset Management Association’s review of investment trends in 2020, UCITS net assets increased 7.6% during the year, with much of this growth occurring in the fourth quarter when vaccine breakthroughs raised hopes that travel restrictions would be ending sooner rather than later. I believe our upcoming UCITS airlines ETF, in collaboration with HANetf, will meet EU and United Kingdom investors’ demand for such a product.”
Hector McNeil, co-CEO of HANetf, added: “It’s no secret that the travel industry has suffered tremendously as a result of the coronavirus pandemic. However, as the light at the end of the tunnel begins to shine more brightly, many investors will have rightly identified the sector as one of the key recovery stories of 2021. As restrictions are lifted, we expect the pent-up desire for international travel to quickly be realized and, as such, have launched the US Global Jets UCITS ETF as a means to offer investors exposure to the rejuvenated sentiment surrounding the airline industry.”