Airline ETF Serves as Proxy for Oil, Economy

As 2009 is under way, new ETFs are coming to market.

They include the Claymore/NYSE Arca Airline ETF(FAA) -- kudos on the clever ticker symbol. FAA is a global fund, with 30% of assets in foreign stocks. It will track the NYSE Arca Airline Index.

The fund has only 25 holdings. A small number is common for narrow ETFs, so there is the potential for single-stock problems. Continental(CAL) is the largest holding, at 14.75%, followed by Southwest Airlines(LUV), 11.78%, and AMR Corp.(AMR), 11.07%. Those figures are as of Jan. 26. On the Claymore Web site is a fact card for the fund, which has the weightings as of Dec. 31. Back then, AMR was the largest holding, at 16.04%. In the past couple of weeks, AMR has fallen by more than 30%. It would be reasonable to expect that kind of volatility to persist.

The larger foreign holdings are Deutsche Lufthansa, 5%, and Singapore Airlines, 4.90%. There is little in the way of emerging-market stocks in the fund, which is a disappointment. Flights in places like China, India and Brazil (although there is one Brazilian stock with less than a 2% weighting) are inexpensive and the ascending middle class in these countries is beginning to fly more. The airlines meeting this demand stand to do well, but that effect will not be captured in FAA.

One look at the older Amex Airline Index(XAL) gives a sense of what a rough time airline stocks have had. XAL has declined about two-thirds from its 2007 high but had fallen as much as 75% from that high and is down 90% from its all-time high. A recurring joke on the TV show "Fast Money" has been about any day being a good day to sell the airlines.