JETS ETF joins the mile-high club, topping $1 billion in assets, even as air travel sinks 90%


Are a group of retail investors about to get grounded?

Over the past two months, investors have plowed so much money into an exchange-traded fund with an out-of-favor investing thesis that it’s recently become one of only a handful of ETFs to reach $1 billion in assets under management.

The success for the US Global Jets ETF
JETS,
+11.58%
,
a fund that tracks commercial airline stocks, in the midst of global lockdowns that left air traffic still down by nearly 90%, raises questions about whether it could be a repeat of what happened in April when individual investors lost big on a fund that bets on the oil price.

“Some portion of this might be millennials using Robinhood to speculate, but if you look beyond 2020, you can be optimistic that the industry will recover,” said Dan Weiskopf, portfolio manager for Toroso Investments. “Using an ETF as a way to reflect that thesis offers a ton of upside.”

In fact, it’s very hard to know for sure who’s buying any ETF. As MarketWatch has previously reported, big institutional investors often buy shares of ETFs in order to sell them short — that is, to make a bet that prices will decline.

There are reasons to think that’s not the case here, Weiskopf said in an interview. Bloomberg data show that short interest on JETS is 1.7 million shares, a tiny sliver compared with the 63.2 million shares outstanding.

And a tracker of investing trends on Robinhood shows that nearly 30,000 investors on that platform have a JETS holding.

Robinhood accounts with JETS holdings, compared with its share price.


Robintrack

The recent interest flies in the face of the decision made by billionaire investor Warren Buffett to exit the airline trade altogether. But Weiskopf believes that’s not a fair comparison. While Buffett famously made some very lucrative bets on nearly distressed assets in the thick of a crisis, he still is a value investor with a particular risk threshold that supports a global conglomerate, not an individual who may be looking to speculate.

While JETS’s sponsor says that it “provides investors access to the global airline industry, including airline operators and manufacturers from all over the world,” it has a fairly concentrated portfolio. The top five holdings account for half the portfolio, with Southwest Airlines Co.
LUV,
+5.08%

making up 12.2%, American Airlines Group Inc.
AAL,
+41.09%

at 10.7%, and Delta Air Lines Inc.
DAL,
+13.73%

accounting for 9.6%.

Since the market trough on March 23, JETS has climbed 36.9%, just trailing the 38.2% gain for the S&P 500 index
SPX,
-0.33%
.

For the right investor, buying into JETS could be a great bet, Weiskopf said. “This industry is needed.” And while there’s good reason to believe the U.S. government wouldn’t let the airlines fail, things may not get that dire.

“I also think people want to be optimistic about something and why not this beaten-down group?” Weiskopf said.

Read:The ‘ANTs’ came marching: how have active, non-transparent ETFs performed so far?



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Jobless claims climb 1.88 million at end of May, but there are growing signs U.S. unemployment is peaking


The numbers: Some 1.88 million Americans applied for traditional jobless benefits at the end of May and another 623,000 filed new claims under a federal-relief program, but the number of unemployed collecting government checks appears to have stabilized as more workers return to their jobs.

Initial jobless claims have slowly tapered off since peaking at almost 7 million in late March. They fell by 249,000 in the seven days ended May 30 from the prior week’s total of 2.13 million, the Labor Department said Thursday.

More important, so-called continuing jobless claims continued to stabilize after a historic surge. They rose by 437,072 to 19.3 million in the week ended May 23, based on unadjusted figures from the Bureau of Labor Statistics. But that’s down from a pandemic peak of nearly 23 million.

To give a clearer picture of unemployment, MarketWatch is also reporting select jobless claims data using actual, or unadjusted, figures. The seasonally adjusted estimates typically expected by Wall Street have inflated jobless claims during the pandemic and become less accurate.

Economists polled by MarketWatch had forecast a seasonally adjusted 1.8 million new claims filed through state unemployment offices.

Read:Manufacturers show faint signs of revival in May as economy slowly reopens

Also:Service side of U.S. economy breaths signs of life in May, ISM finds

What happened: A whopping 48 million applications for benefits have been filed since the coronavirus pandemic began several months ago, reflecting almost 30% of the labor force before the crisis.

Yet the number of pandemic-related claims is not reflective of how many people are actually receiving benefits. More people have been returning to work as states started to reopen their economies in May. A small number of claims have also been rejected and in some cases people filed more than once.

That’s why economists are focusing more on continuing jobless claims, one of six indicators used in Marketwatch’s Coronavirus Economic Recovery Tracker.

What’s complicated matters, though, is the states are separately reporting new applications for benefits filed under the federal program. And in some cases the reported numbers have been initially off-base and subject to large corrections.

Some 623,073 people applied for benefits in the week of May 30 using the federal government’s Pandemic Unemployment Assistance program. One caveat: Only 36 states reported those figures.

The BLS also said 10.7 million unemployed workers were getting benefits through the PUA as of May 16, the latest data available.

The total number of people receiving benefits through eight separate state and federal programs fell by about 1 million to unadjusted 29.9 million in the week ended May 16. Yet the two-week old data is not a good indicator of what’s going on in the labor market right now.

Big picture: The good news is that several million Americans who lost their jobs during the early stages of the pandemic appear to have gone back to work.

The bad news is that a far larger number remain on the sidelines and are likely to stay there for a while. And some especially hard-hit businesses such as retailers and restaurants won’t have jobs to which employees can return.

The government on Friday is likely to report the U.S. unemployment rate rose to 19% or higher in May, according to the MarketWatch survey. Few economists think the jobless rate will drop below 10% until next year in an indication of just how long they think it will take for the U.S. to recover.

Read:Private sector shed 2.76 million jobs in May, ADP says, much less than forecast

What they are saying? “The data suggest the pace of hiring has been sluggish in the very early innings of the reopenings,” said Sal Guatieri, senior economist at BMO Capital Markets.

Market reaction:The Dow Jones Industrial Average
DJIA,
+0.03%

and S&P 500
SPX,
-0.18%

edged higher in Thursday trades. Stocks have been rising lately after a slew of indicators including the ISM surveys signaled the economy bottomed out in April and began to revive in May.



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Dow futures march higher as investors await private-sector jobs report


U.S. stock-index futures pointed to further gains on Wednesday after the stock market closed at its highest level since early March.

How are benchmarks performing?

Futures for the Dow Jones Industrial Average
YMM20,
+0.52%

YM00,
+0.52%

were up 109 points, or 0.4%, at 25,810, those for the S&P 500 index
ESM20,
+0.32%

ES00,
+0.32%

were trading 9.10 points, or 0.3%, higher at 3,086.25, while Nasdaq-100 futures
NQM20,
+0.28%

NQ00,
+0.28%

gained 22.25 points to reach 9,670, a rise of 0.2%.

On Tuesday, the Dow
DJIA,
+1.05%

rose 267.63 points, or 1.1%, to end at 25,742.65, marking its highest close since March 6, according to Dow Jones Market Data. Meanwhile, the S&P 500 index
SPX,
+0.82%

rose 25.09 points, or 0.8%, closing at 3,080.82, its loftiest finish since March 4, and the Nasdaq Composite Index
COMP,
+0.59%

advanced 56.33 points, or 0.6%, to finish at 9,608.37, representing its best closing level since Feb. 20.

What’s driving the market?

Markets have climbed a virtual wall of worry to head higher over the past several sessions, shrugging of social strife and violent demonstrations in major cities, testiness between the U.S. and China and the economic carnage wrought by a viral pandemic.

On Wednesday, investors will get a fresh read of the impact of efforts to limit the spread of COVID-19, with a report on private-sector employment likely to show that 8.663 million jobs were lost in May, according to Econoday, compared with Automatic Data Processing Inc.’s
ADP,
+1.85%

estimate in April for a loss of 20.236 million. The data, which will be released at 8:15 a.m. Eastern, comes ahead the more closely watched Labor Department report that will be released Friday.

Markets have previously ignored abysmal economic news and a wave of protests across U.S. cities sparked by the death of George Floyd in Minneapolis last week — an unarmed black man who died under the knee of a white police officer. Protests about social injustice in America have resulted in curfews imposed in a number of cities, including New York.

“Social unrest continues across the U.S. resulting in New York, known as ‘The City That Never Sleeps,’ imposing an 8 p.m. curfew today, a full 22 minutes before sunset,” wrote BTIG analysts Julian Emanuel and Michael Chu in a Tuesday research note.

The current bout of civil unrest playing out in America has drawn comparisons to social justice protests in 1968, but the BTIG analysts note that the weakened state of the economy due to the fallout from the viral outbreak makes the situation worse. “GDP growth in 1968 was 4.8%, 2020’s GDP is forecast -5.8%,” the analysts wrote.

Hope for success in businesses reopening has been credited with pushing stocks higher, but analysts say that an unprecedented dose of stimulus from the Federal Reserve has also provided a floor for assets considered risky. Weekly data showed that the Fed’s balance sheet rose to $7.1 trillion as of last Wednesday, up from $7.04 trillion over the prior period. Meanwhile, the U.S. government has injected trillions of dollars more into small businesses and workers to help stem the hardship of store closures.

In addition to labor-market data, investors will watch for a report on the services sector from the Institute for Supply Management at 10 a.m. as well as a report on factory orders at the same time.

Read: Amid disease, riots and rising U.S.-China tensions, the stock market keeps it cool

Which stocks are in focus?



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Do you want to ‘do something’ about violence and oppression? As an investor in America, you’re basically out of luck


America is burning, convulsed by anger over a militarized police presence and by a sense of impotence in the face of an economic system that lets the rich get richer at the expense of everyone else.

Yet for any American who sees images of social injustice, rampant inequality or dysfunctional civil institutions, and wants to “do something,” there are few options for actually putting one’s money where one’s values are. The world’s biggest economy is fractured and hard to rein in and its corporations are too powerful for most individuals to sanction. And all too often, making change on the local level means dealing with the legacy of years of policies designed to benefit the wealthy.

“Most ‘socially responsible investing’ as we currently do it fails because most injustices cannot be measured on the company level,” said Perth Tolle, founder of Life + Liberty Indexes.

Tolle’s novel approach to quantifying the impact of freedom on investments has grabbed media attention and industry accolades. In 2019, when MarketWatch profiled the exchange-traded fund she launched to capitalize on those ideas, Tolle said, “it is freedom that allows the emerging markets of yesterday to become the developed markets of tomorrow.”

Yet, her fund, the Freedom 100 Emerging Market ETF
FRDM,
+2.03%
,
invests only in equities in developing countries with freedom of speech, freedom of the press and the right to protest, as well as government accountability, due process and the rule of law.

“In a system that allows for those things, injustices can be corrected,” Tolle said in an interview in May.

Tolle’s innovation — a measurable way to quantify the impact of social good — stands out in an industry that many observers find hypocritical on the subject of social responsibility. “ESG is a complete fraud,” noted venture capitalist Chamath Palihapitiyav told CNBC in February.

As MarketWatch has reported, some of the biggest Wall Street-sponsored funds that sport “socially responsible” labels invest in ventures that are anything but. Three State Street ETFs that use the phrase “Fossil Fuel Reserves Free” in their names have overall fossil-fuel exposure as high as 7.4%, for example.

But Tolle’s methodology also only reflects a basket of stocks in emerging markets, not developed ones, and works best when comparing countries, rather than companies or metro areas or individuals, against each other. The fund has been open 12 months, and has attracted $22 million in investor assets. It’s lost 11% of its share price in that time, even as the S&P 500
SPX,
+0.16%

has gained 11%.

Americans may take comfort in the reality that no matter what the conditions are in the U.S. right now, it remains much freer than, say, China or Russia. But that can feel like very cold comfort, especially at a moment when those rights may feel eroded.

See: Trump threatens to mobilize military to quell protests

Read:Fool me twice? For businesses and consumers, coronavirus is the financial crisis all over again

That’s where Josh Levin hopes to make a difference. He’s chief strategy officer and co-founder of OpenInvest, a company that develops tools for financial advisors to customize client portfolios to reflect individual values.


“Racism is a cradle-to-grave, systemic issue, which is why the frustration is boiling over”


— Josh Levin, CSO and co-founder, OpenInvest

OpenInvest has indexes built around some familiar social causes — reducing greenhouse gas emissions, divesting from the prison-industrial complex, supporting women leaders — but also on racial justice.

The company created the investing tool because, as Levin put it, “there has historically been a big gap in the socially responsible investing space on that issue. But racism is a cradle-to-grave, systemic issue, which is why the frustration is boiling over.”

“In order to approach a systemic issue, you can use your vote and make political changes, but through your assets you also have a piece of control of these entities, which are more powerful than many governments,” Levin told MarketWatch.

To combat racial injustice, OpenInvest’s index screens for metrics like board member inclusion, workforce diversity and which companies pollute the most in communities of color. More recently, it’s also begun to allow investors to target geographies, whether to allow increased investment in companies that employ people in a poor part of the country, or to let investors divest from a state that’s implemented laws they deem objectionable.

See: ETFs can bring fairness to finance, says LGBTQ+ pioneer Barney Frank

While Tolle focuses on freedom in emerging markets, Levin thinks major corporations wield more power than many components of government, making them a worthy target for change. But it’s also important to keep in mind that publicly traded companies are just one piece — if a large one — of the overall economy.

When people express a desire to “do something” with their money, they may be thinking of local communities and public services that Fortune 500 behemoths might seem to have little direct impact on.

After all, much of what Americans take for granted in the mundane day-to-day — “when you turn on the tap and water comes out, or you drive down a street that’s paved” — owes its existence to the $3.9 trillion municipal bond market, noted Daniel Bergstresser, a finance professor at the Brandeis International Business School.

It might be tempting to try to invite other investors into the financing of public services—not just infrastructure but schools, community spaces, education and more. But as Bergstresser pointed out, in recent years, creative municipal financing often has meant desperate public entities striking deals with Wall Street that don’t go so well for the community.

The Intercept recently tracked the recent water crises of two American cities: Flint, Michigan and Pittsburgh, Pennsylvania, to a private water company named Veoli.

OpenInvest’s Levine says that’s why his company is working as quickly as possible to offer access to other types of asset classes and investments. “The investor of the future will have a portfolio of ESG equities, ESG fixed income, crypto and micro investments,” he said. For now, “invest in black-owned businesses!”

For Bergstresser, who says “there is a lot of baloney that gets sold as ‘ESG,’” there is an irony in the Wall Street rush to monetize socially responsible investing.

“Many of the aims of socially responsible investing are things that in an earlier generation we would have said are the responsibility of the government,” he said. “There are a lot of good intentions in socially responsible investing, but much of it reflects an implicit giving-up on what government is capable of accomplishing, and on the idea that rich people should pay taxes.”

In a country that may feel like it’s losing its collective soul, it’s even more critical to remember the social contract, Bergstresser noted.

Related:The financial and housing market rescue left many Americans behind



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Stock-market futures knocked around as U.S. cities rocked by protests amid pandemic


U.S. stock-index futures bounced around in thin trading early Monday morning, amid violent protests that reverberated throughout the country.

The clashes between police and protesters come while the U.S., and much of the world, is in the throes of the coronavirus pandemic that has rocked the domestic economy to its core.

What are stock benchmarks doing?

Futures for the Dow Jones Industrial Average
YMM20,
+0.02%

YM00,
+0.02%

were little changed at 25,370, off 8 points, or less than 0.1%. Those for the S&P 500 index
ESM20,
+0.00%

ES00,
+0.00%

were 4.25 points, or 0.1%, lower at 3,037.75, while Nasdaq-100 futures
NQM20,
+0.00%

NQ00,
+0.00%

were trading 11 points lower at 9.549, a decline of 0.1%.

On Friday, the Dow
DJIA,
-0.06%

booked a weekly gain of 3.8%, while the S&P 500
SPX,
+0.48%

finished 3% higher and the Nasdaq Composite Index
COMP,
+1.29%

ended the period 1.8% higher. In May, the Dow logged a 4.3% gain, the S&P 500 climbed 4.5%, while the Nasdaq marked a 6.8% return on the month.

What’s driving the market?

A series of protests erupted across major cities from Los Angeles to New York after George Floyd, a black man, died last Monday following a confrontation with police in Minneapolis in which one officer, Derek Chauvin, was captured on video driving his knee onto Floyd’s neck until the handcuffed man lost consciousness and later died.

Angry clashes between civilians and law enforcement, including fires near the White House, aren’t expected to have long-term economic implications, but the protests come as many retailers and businesses are still swooning from the pandemic and were caught up in looting and vandalism that ensued during the weekend demonstrations.

“The direct economic impact of the protests is small, at least so far,” Mark Zandi, chief economist of Moody’s Analytics, told MarketWatch. However, he said that the near-term damage to the psyche of consumers and the business community may be more substantial.

“Just when people were starting to come out of the proverbial bunkers, the protests may be too much for them, and they will go back in,” he said. “The protests are also symptomatic of just how deep the economic problems and racial tensions go in our country,” the economist said.

Experts also worry that the throngs of people gathering may also result in a jump in cases of COVID-19, just as public health officials hoped they were getting a handle on the viral outbreak.

“It’s a triple whammy of protests, plus raging pandemic, plus economic instability. Those three things together make for a perfect storm of viral transmission,” Peter Chin-Hong, an infectious disease specialist at the University of California, San Francisco, was quoted as telling the Wall Street Journal.

However, the market may take heart in the fact that states continue to unlock their economies from measures implemented to stem the spread of the deadly disease. All 50 states are under some stage of reopening from forced shutdowns due to the pandemic.

Meanwhile, President Donald Trump’s actions against China were viewed as less confrontational than had been expected. The president on Friday announced a number of measures to censure China’s crackdown on Hong Kong’s independence, including plans to withdraw funding from the World Health Organization, but he fell short of withdrawing from a phase-one trade agreement or issuing sanctions directly against China.

Upbeat economic data from China may also bolster the market’s mood. The Caixin China manufacturing index was at 50.7 for May, compared with an April reading of 49.4. A reading of 50 or better indicates improving conditions, while those below that level signal contraction.

The data suggests that China, where the novel strain of coronavirus originated in Wuhan, may be showing signs of improving.

Looking ahead, investors will be watching for domestic economic data, including Markit manufacturing PMIs for May due at 9:45 a.m. Eastern, and the more closely followed manufacturing index at 10 a.m. from the Institute of Supply Management. A reading of construction spending for April also is due at the same time.

Which stocks are in focus?



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