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With Buffett Bailing, It Could Be A Black Monday For Airline ETF

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With Buffett Bailing, It Could Be A Black Monday For Airline ETF

The headline-grabbing takeaway from Berkshire Hathaway's (NYSE: BRK-A) shareholder meeting and first-quarter earnings report over the weekend is that Warren Buffett's conglomerate ditched its equity investments in the four major U.S. airlines.

After eschewing airlines for decades, Berkshire began amassing stakes in American Airlines (NASDAQ: AAL), Delta Airlines (NYSE: DAL), Southwest Airlines (NYSE: LUV) and United Airlines Holdings (NASDAQ: UAL) in 2016, eventually becoming one of the largest investors in each of the four largest domestic carriers.

While noting the U.S. has faced worse situations than the coronavirus crisis and that world's largest economy has a history of rebounding from dark times, Buffett said “the world has changed” for the airline business.

See Also: 'I Was Wrong': Warren Buffett's Berkshire Hathaway Sold $6B Of Airline Stock In April

Why It's Important

Although Buffett said Berkshire departed the airlines in April, confirmation that one of history's most highly regarded and widely followed investors is ditching an industry is unlikely to bring good near-term news for the lone exchange traded fund dedicated to the group: the U.S. Global Jets ETF (NYSE: JETS).

Down 55.27% year-to-date, JETS follows the U.S. Global Jets Index (JETSX). Explaining why the ETF could be vulnerable on the back of Berkshire Hathaway's departure from airline equities is easy: in order, Southwest, American, Delta and United combine for over 42% of the fund's weight, according to issuer data.

Put simply, yes, those stocks have already been punished this year and yes, Berkshire dropped those names in April, but it's unlikely that many investors are going to buck Buffett here and swim against this tide.

How that plays out at the individual stock level remains to be seen, but it's worth noting JETS has been popular with investors this year, hauling in more than $592 million in new assets.

What's Next

JETS won't be alone when it comes to potential Monday vulnerabilities related to the Berkshire meeting. Buffett has a long history of favoring easy-to-understand investments. Apparently, Boeing (NYSE: BA) doesn't fit that bill because the Oracle of Omaha called the aerospace giant “hard to evaluate.”

That likely dashes hopes that Berkshire would come to Boeing's aide at some point, potentially using some of its massive cash position to assist the downtrodden Dow component.

Buffett's Boeing comments could pressure an array of ETFs where the stock commands heavy weights, including the iShares U.S. Aerospace & Defense ETF (CBOE: ITA). Boeing is the third-largest holding in that ETF at a weight of 11.37%.

 

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