Liquid Alternatives: Buffett Dumps Airlines; What That Means For the JETS ETF

May 4, 2020 | Liquid Alternatives, News
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The shock weekend revelation from Berkshire Hathaway: It bailed on airlines.

Investors who were bottom-fishing the airlines’ sector via the U.S. Global Jets ETF (NYSEARCA: JETS) are likely to view today’s (Monday) trading with some trepidation. Buffett, one of the world’s most respected and emulated investors, said over the weekend that he’d had it with airlines. Berkshire Hathaway (NYSE: BRK.A) now has zero exposure to the pandemic-hit U.S. airline sector. (Benzinga)

World’s changed, says Buffett

Buffett’s firm sold out holdings in the four major US airlines as the pandemic roiled the travel industry and aircraft the world over sat on tarmacs and airline parking slots.

“We made that decision in terms of the airline business. We took money out of the business basically even at a substantial loss,” Buffett said. “We will not fund a company … where we think that it is going to chew up money in the future.”

Further, Buffett warned that the “world has changed” for the aviation industry due to COVID-19 and that there could be an “extraordinarily wide” range of possible outcomes from the outbreak.

As of end-2019, Berkshire had the following holdings in the major airlines: 11% stake in Delta Air Lines (NYSE: DAL), 10% of American Airlines (NASDAQ: AAL), 10% of Southwest Airlines (NYSE: LUV) and 9% of United Airlines (NASDAQ: UAL).

Berkshire dumped its aviation holdings in April, Buffett said. The four airlines together form a large chunk of the JETS ETF.

U.S. Global Jets ETF (NYSEARCA: JETS)

The U.S. Global Jets ETF (NYSEARCA: JETS) has already declined over 55% this year.

As of May 1, JETS had the following holdings of the major airlines: Southwest Airlines (11.73%), American (11.45%), Delta Air (9.7%) and United Air (9.28%)

The JETS ETF has been consolidating inside a symmetrical triangle in recent weeks after a sharp fall. Over the past 4 sessions, the ETF broke to the upside out of the triangle.

The latest blow out of Omaha is likely to put paid to the nascent rally in JETS, however.

The most likely scenario is that the ETF may resume its downtrend.

Related Story:    DailyAlts Playbook: “Airline companies should enter bankruptcy” – Bill Ackman

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