New Airline ETF: It's About the Volatility

CHARLOTTE, N.C. -- Claymore Securities may look smart launching an airline ETF just as many analysts are eyeing the sector as one of the few likely to produce profits in 2009.

But in reality, for Illinois-based Claymore, profits have nothing to do with selecting airlines as the focus for the firm's 34th exchange-traded fund -- the Claymore/NYSE Arca Airline ETF(FAA).

Rather, it is volatility, not profits, that creates a demand for the frequent, convenient trading provided by an ETF.

"We don't think people are going to use this to invest long term in airlines," said Claymore President Christian Magoon in an interview. "This is a trading product by which to quickly and to conveniently participate in what has historically been a volatile sector, to allow traders to move in and out minute by minute and intraday."

To demonstrate just how volatile airline shares can be, Magoon noted that over the past nine years, returns at the Morgan Stanley Capital International World index, a common benchmark for global stocks, have drifted as low as 17% to 18% in down cycles. In their down cycles, airlines have drifted as low as 35% to 38%.

In fact, when Claymore began working on its airline index fund about six months ago, oil prices were close to their all-time high of $147 a barrel, reached in July. "Airlines didn't look appealing six months ago," Magoon noted. "We're lucking out this year.

"But from our standpoint, we're just trying to get people exposure to airlines. As for the specific fundamentals of the business, we don't have a viewpoint on that one way or the other," he said.