Posted in Finance, Accounting and Economics Terms, Total Reads: 317
Definition: Airline Industry ETF
ETF means exchange-traded fund. It is a sector ETF which invests in the stocks of an airline company to obtain an investment result which corresponds to that of an underlying airline index. Since the number of airlines in most of the nations is limited, an airline ETF is most likely to be opened to both domestic as well as international carriers.
An airline industry depends on many factors which can affect the demand in air travel. Those factors include recession, terrorist actions, and weather-related disruptions etc. at such times, an airline ETF may underperform. Also when fuel prices are rising, it may not give expected output since the profitability of an airline industry is largely impacted by the cost of the aviation fuel.
Advantages: if one owns an ETF, one gets the diversification of an index fund, the ability to sell short as well as buy on margin and purchase as little as one wishes to buy. Also, the expense ratios in ETFs are generally lower than those of the mutual fund. The risk associated with ETFs is lower compared to the share market.
Disadvantages: Actual cost of trading of ETF may be higher because of management fees for the stocks with broker’s commission. Also, the dividend yields may not be as high as owning some other high yielding stocks. Furthermore, tax implications associated with this also needs to be considered.
Example: a brand new exchange traded fund was launched by the U.S. Global Investors. It is known as the U.S. Global Jets ETF. It is the only airline ETF currently.