Airline ETF, Not For Buy and HoldWith the creation of the airline ETF (FAA) investors are now able to get some airline exposure to their portfolios. However, it may not be a good thing to keep as a long term investment. Historically airline stocks have not been the best place to invest your money and it is very easy to see why. Nearly all if not every major airline has declared bankruptcy at least once. The huge expenses it cost to run an airport combined with the large wages some of the workers receive mean that they really don’t make much money. Instead airlines can live for years by getting bailed out by the government, creditors, and chapter 11 bankruptcy. The major US airlines lost $35 billion dollars between 2000 and 2005 and it just keeps getting worse. Over the long term the FAA is probably not going to be that great of an investment. What is it good for? Of course that does not mean that it is good for nothing. The FAA was created as a trading instrument, not a buy and hold one. The Claymore President Christian Magoon had this to say about the ETF their company created. "We don't think people are going to use this to invest long term in airlines,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." So, by all means use this stock for trading purposes. But if you want to buy this ETF for diversification or hedging why bother? There are plenty of other better investments out there. |
