U.S. Global Investors, a San Antonio, Texas-based investment adviser, today launched the U.S. Global Jets ETF (NYSE: JETS). Meeting demand for the strongest industry in the industrials sector, JETS is the only airline industry ETF and offers investors global exposure to commercial airline, aircraft manufacturing, and airport industries based on fundamental and liquidity factors.
Significant restructuring of the airline industry has contributed to the recent success of domestic and international airlines.
Since 2008, carriers have worked to improve their balance sheets by streamlining operations, implementing stricter fuel efficiency standards, and using those cost savings to benefit shareholders. Free cash flow, an important measure of financial performance, is expected to reach new highs across the industry. With greater free cash flow, airlines are able to invest in themselves by upgrading their fleets with more efficient aircrafts, reward shareholders with share buybacks or dividends and provide a better experience for customers.
Thanks in part to better cash flow, the airline industry has experienced a rise of 287% over the past three years ended 04/01/2015, making it the best performing industry within the industrials sector.1 “Airlines have demonstrated the ‘magic’ financial factor,” said Frank Holmes, CEO and Chief Investment Officer of U.S. Global Investors, “and that is free cash flow.”
While dropping oil prices may have played a part in the airlines’ recent success, many industry leaders began their ascent long before the effects of cheap oil had been felt. Moreover, many carriers hedge their fuel exposure and still have not experienced the benefits of lower fuel costs – airlines’ single greatest operating expense.
The U.S. airline industry alone is expected to see a pretax profit of $3.5 billion in the first quarter versus $700 million a year ago.2 “It’s easy to forget that between 2005 and 2008, about 70 percent of U.S. carriers were operating under Chapter 11 bankruptcy protection,” Holmes said, “but we’ve seen a sea change since then and the benefits of restructuring started showing up in 2013.”
Greater seat density has enabled airlines to improve breakeven load factors, or the minimum number of seats that must be filled to recoup operating expenses. This means that today airlines must fill fewer seats before breaking even. Charges for extras such as checked baggage, priority boarding, Wi-Fi, and extra legroom have also made large contributions to airlines’ bottom lines. Global ancillary (non-ticket) revenue was just $2.45 billion in 2007, but by 2013 it had risen to $31.5 billion.3
With JETS, investors will gain exposure to both domestic and international airlines. This strategy allows the fund to dynamically take advantage of the emergence and growth of the middle class in the developing world.
JETS’s construction is intended to provide broad exposure to the universe of companies associated with the business of flying, with an 80% allocation to domestic names (the four leaders being Southwest, Delta, United and American), a 20% allocation to international names ( Japan Airlines, Air Canada, EasyJet, etc.)
JETS is a smart beta, passively managed fund that is designed to track the U.S. Global Jets Index. Candidates for inclusion must be members of the airlines, aircraft manufacturing, or airports & terminal service industries.
The index is rebalanced and reconstituted quarterly. The expense ratio is 0.60%.
About U.S. Global Investors, Inc.
U.S. Global Investors, Inc. is an innovative investment manager with vast experience in global markets and specialized sectors. Founded as an investment club, the company became a registered investment adviser in 1968 and has a longstanding history of global investing and launching first-of-their kind investment products. U.S. Global Investors is well known for expertise in gold and precious metals, natural resources and emerging markets.
Since 1989, U.S. Global Investors has been led by CEO Frank Holmes, who purchased a controlling interest in the company that same year. U.S. Global Investors is a publicly traded company (NASDAQ: GROW) headquartered in San Antonio, Texas.
Past performance does not guarantee future results. Index performance is not illustrative of fund performance and an investment cannot be made directly in an index. The fund is new and fund performance can be obtained at www.usglobaletfs.com, when available.
Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a statutory and summary prospectus by visiting www.usglobaletfs.com or by calling 844.ETF.JETS (844.383.5387). Read it carefully before investing.
Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the fund. Brokerage commissions will reduce returns. Because the fund concentrates its investments in specific industries, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries. The fund is non-diversified, meaning it may concentrate more of its assets in a smaller number of issuers than a diversified fund. The fund invests in foreign securities which involve greater volatility and political, economic and currency risks and differences in accounting methods. These risks are greater for investments in emerging markets. The fund may invest in the securities of smaller-capitalization companies, which may be more volatile than funds that invest in larger, more established companies. The performance of the fund may diverge from that of the index. Because the fund may employ a representative sampling strategy and may also invest in securities that are not included in the index, the fund may experience tracking error to a greater extent than a fund that seeks to replicate an index. The fund is not actively managed and may be affected by a general decline in market segments related to the index.
Distributed by Quasar Distributors, LLC. U.S. Global Investors is the investment adviser to JETS.
Free Cash Flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Smart beta refers to investment strategies that emphasize the use of alternative weighting schemes to traditional market capitalization based indices.
Fund holdings and allocations are subject to change at any time. Please visit http://www.usglobaletfs.com/jets_fund.html to find fund holdings in JETS.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The S&P 500 Airlines Index is a capitalization-weighted index, comprised of the GICS Level 4 Sub-Industry Airline Group.
The U.S. Global Jets Index seeks to provide access to the global airline industry. The index uses various fundamental screens to determine the most efficient airline companies in the world, and also provides diversification through exposure to global aircraft manufacturers and airport companies. The index consists of common stocks listed on well-developed exchanges across the globe. It is not possible to invest directly in an index.
1 Bloomberg Data, S&P 500 Airlines Index, 2015
2 Deutsche Bank, 13 April 2015
3 IdeaWorks airline consulting group, 16 July 2014
Susan Filyk, 210-308-1286