Investors bet against Warren Buffett as airline ETF sees 1600% surge in fund flows
- Warren Buffett revealed over the weekend that Berkshire Hathaway had liquidated its entire stake in the airline stocks, saying, "Our airlines position was a mistake."
- Investors are betting against Warren Buffett, as evidenced by a 1,600% increase in fund flows into the US Global Jets exchange-traded fund.
- The move comes as the airline ETF JETS has experienced a 60% decline in value since the coronavirus outbreak reduced air traffic travel by more than 90%.
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As Warren Buffett was selling Berkshire Hathaway's airline positions, investors were buying them, taking the opposite side of Buffett's bet that he revealed at Berkshire Hathaway's annual meeting on Saturday.
"Our airlines position was a mistake," Buffett said.
But where Buffett sees a mistake, many investors are eyeing an opportunity.
The US Global JETS exchange-traded fund has seen a surge in assets under management ever since the coronavirus pandemic caused a massive sell-off in airline stocks.
JETS saw its assets increase to as high as $615.8 million on April 30, from $34.6 million on March 3, representing an increase of more than 1,600%, according to data from YCharts.
The surge in assets represents a windfall of more than $3.5 million in annual revenue for the ETF's issuer, US Global Investors, based on the ETF's 0.60% expense ratio and assuming the ETF maintains assets of at least $600 million.
For a perspective of just how massive the fund flows into the JETS ETF are, here is a visualization of one-year fund flows for the ETF.
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Over the past year, prior to the coronavirus outbreak, JETS had seen only one day of net inflows.
One. Day.
The top four holdings in JETS are Southwest Airlines, American Airlines, Delta Air Lines, and United Airlines, each representing 11.4%, 11.0%, 9.4%, and 9.1% of the ETF, respectively.
What separates the explosion in fund flows into the JETS ETF from other ETF themes that have experienced similar assets grabs in the past is the direction the ETF price is moving.
Popular theme ETFs, like cyber security ETF HACK and robotic and automation ETF ROBO, usually see their spike in asset flows occur when the underlying securities of the ETF are rising in price and investors want to participate in the rally.
JETS bucks that trend. The ETF is down 60% since its assets have increased more than 17-fold, an indication that investors are betting on a recovery in the airline industry.
Additionally, JETS is seeing higher and more intense fund flows than many previous theme ETFs that were at the right place at the right time and experienced a surge in assets under management.
Bloomberg senior ETF analyst Eric Balchunas said in a tweet on Wednesday, "I went back and compared the intensity and amount of inflows of $JETS to $HACK, $ROBO and $MJ, three theme ETFs that caught fire back in day and none of them put down numbers like $JETS, even during their best runs."
The fund flow into JETS is consistent with data from Robintrack, a service that tracks the number of Robinhood accounts that own a particular stock or ETF.
For the JETS ETF, there was a surge in ownership among Robinhood accounts.
On March 3, just 386 Robinhood accounts owned JETS. Today, more than 20,000 do, representing an increase of more than 5,000%.
This investor behavior is similar to what's been observed in the ETF USO, which also saw an increase in Robinhood account ownership as its price plummeted.
It remains to be seen whether Warren Buffett selling his airlines position or the investors piling into airline stocks will be right, but some are already taking sides.
Balchunas finished his tweet thread by saying, "Many mocked the RH crowd yesterday (as usual) for being bag holders, but it ain't over. tbh, while I love Buffett, I'm rooting for them to get the win here."
The JETS ETF was down as much as 3.7% to $12.62 in Wednesday afternoon trading.