As tourism rebounds for the summer travel season, the travel industry is hoping for strong results despite ongoing issues with inflation and rising fuel prices. The potential for a strong travel economy has prompted some investors to once again get behind airlines, cruise lines and other transportation-related stocks. One way to get in on the action is through exchange-traded funds (ETFs).
Transportation exchange-traded funds invest primarily in companies involved in travel services and the industries that support them. These companies include airlines, railroads, trucking, and vehicle manufacturers.
Through ETFs, investors gain access to a basket of companies with a similar profile – in this case transport-related services. ETFs are useful because they provide instant diversification at a low cost. This added benefit is attractive to all types of investors, especially when selecting stocks requires a certain level of investment knowledge.
Top ETFs for Airlines and Transportation
Below are some of the most widely used aviation and transportation ETFs on the market. (Data is from April 1, 2024)
US Global Jets ETF (JETS)
JETS invests in a wide range of airlines, including aircraft manufacturers and airport operators. The fund, published by US Global Investors, selects both domestic and international companies with varying degrees of market capitalization. This ETF is purely focused on the aviation sector.
- Five-year returns (annualized): –6.4 percent
- Top positions: American Airlines (AAL), Delta Airlines (DAL), United Airlines (UAL) and Southwest Airlines (LUV)
- Cost ratio: 0.60 percent
- Assets under management: ~$1.3 billion
iShares Transport Average ETF (IYT)
IYT invests in US airline, rail and trucking companies. The fund tracks the performance of twenty transportation stocks that are part of the S&P Transportation Select Industry FMC Capped Index.
- Five-year returns (annualized): 9.1 percent
- Top positions: Uber Technologies (UBER), Union Pacific Corp (UNP), United Parcel Service (UPS) and CSX Corp (CSX)
- Cost ratio: 0.40 percent
- Assets under management: ~$979.7 million
First Trust Nasdaq Transportation ETF (FTXR)
FTXR invests in U.S. companies involved in automotive manufacturing, airports and airlines, trucking and railroads. The fund tracks 30 transportation companies that are part of the Nasdaq US Smart Transportation Index. The fund was launched in September 2016.
- Five-year returns (annualized): 7.6 percent
- Top positions: FedEx Corp (FDX), Ford Motor (F), General Motors (GM) and Tesla (TSLA).
- Cost ratio: 0.60 percent
- Assets under management: ~$40.1 million
SPDR S&P Transport ETF (XTN)
XTN has an allocation of approximately 40 percent to aviation and air freight companies, with the remainder invested in railways, seaports and services, as well as freight transport. The State Street Global Advisors fund tracks the performance of the S&P Transportation Select Industry Index.
- Five-year returns (annualized): 7.4 percent
- Top positions: Alaska Air Group (ALK), FedEx Corp (FDX), Delta Air Lines (DAL) and United Airlines (UAL).
- Cost ratio: 0.35 percent
- Assets under management: ~$193.1 million
Amplify Travel Tech ETF (WEG)
While not a traditional transportation ETF, AWAY invests in technology-focused travel and tourism companies that benefit the travel industry. The fund tracks the performance of 30 companies involved in travel booking and reservations and ride-sharing requests, as well as travel advice. The fund was launched in February 2020.
- Three-year returns (annualized): -13.6 percent
- Top positions: Lyft (LYFT), Airbnb (ABNB), Trainline PLC (TRN.L) and Booking Holdings Inc (BKNG)
- Cost ratio: 0.75 percent
- Assets under management: ~$89.0 million
How to invest in airline ETFs
Depending on your financial goals, asset allocation and risk tolerance, there are different strategies for investing in airline and transportation stocks. Your level of financial knowledge and commitment to your investments also plays a factor.
Once you’ve determined your comfort level and narrowed down your options, the most important features to consider are:
- Fund performance: Numbers don’t lie. So as you research, look at a fund’s performance over the short, medium and long term.
- Trading volume: The more liquid a fund is, the easier it will be to buy and sell. See how average trading volume compares to similar ETFs.
- ETF Top Positions: By law, fund companies must disclose their assets, which is beneficial to investors as it provides transparency. It’s also helpful to decide whether these investments align with your financial goals. When looking at investments, pay attention to portfolio weightings.
- Fund flows: Many investors keep track of how much capital flows in and out of funds, often on a weekly and monthly basis. Any long-term trends in money flows are valuable because they paint a picture of investor sentiment.
- Expense ratios and reimbursements: As standard, most ETF providers charge competitive rates. But even at relatively low levels, these costs can add up, so be sure to compare apples to apples and read the fine print.
- Assets under management (AUM): Many investors use this figure as a vote of confidence to assess the involvement of other investors in a particular ETF. Along with AUM figures, it can be useful to check the longevity of the fund.
- Publisher of the fund: Brands are powerful, and the ETF space is no different. Some investors feel comfortable investing only in large asset managers, while others see the value in newcomers. Decide what works for you and your financial needs.
Use the above factors as a guide as you discover your next transportation ETF.
While discretionary travel was paused during the pandemic, the travel industry is back. Airline and transportation ETFs can be a gateway to any lift in the sector.
— Bank interest Georgina Tzanetos contributed to a recent update to this story.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making any investment decision. In addition, investors are advised that the past performance of investment products does not guarantee future price increases.
