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) - Get Report

is the largest holding, at 14.75%, followed by

Southwest Airlines

(LUV) - Get Report

, 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.

This brings up an interesting point about the launch of the fund. Claymore President Christian Magoon was on CNBC to talk about FAA and, unlike most fund launch interviews, there was no attempt to create a bullish case for the airlines. Magoon pointed out that there has been a lot of volume and volatility in airline stocks, and Claymore felt this signaled demand for a vehicle to access the industry that did not take (much) single-stock risk. I'm impressed by the forthrightness of that reasoning.

If we conclude that FAA is more of a trading vehicle, that calls into question how exactly to use FAA. Claymore's fact card mentions that the back test for the NYSE Arca Airline Index has a negative correlation to light sweet crude. An aggressive trader bullish on oil could buy FAA as a hedge instead of an inverse ETF which could bypass the daily compounding effect that has been such a popular topic in the past few weeks.

FAA could also be viewed as a proxy for the early phase of an economic expansion. XAL dramatically outperformed the S&P 500 in the earlier stages of the past two bull markets. The perception or reality of air traffic increasing when the economy starts to turn up is a pretty easy connection to make.

There are probably other uses for FAA, including simply wanting to own the airlines or speculate on the airlines one way or another. But more than any other sub-sector ETF I can recall, the case for using FAA would seem to be more about the fund being a proxy for something else entirely, which I view as a step up in sophistication.

At the time of publication, Nusbaum had no positions in the holdings mentioned.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback;

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