In 2016, Warren Buffett's Berkshire Hathaway added four new airline stocks to its portfolio: American Airlines, Delta, Southwest and United Continental Holdings. The buy in on airline stocks was a big move. While Berkshire has trimmed some of its shares, the holdings still remain and investors have taken notice. (See also: Warren Buffett Buys $5.5 Billion in Airline Stocks.)

There are several good reasons to invest in airline stocks and 2018 could see the category reporting new highs. First, revenue per available seat mile (RASM) is projected to be on the uptrend after a few tough quarters in 2017. RASM is critical to the growth of airline stocks and analysts believe reduced weather-related pressures and stable market competition could help this metric improve. Then there's also the issue of capacity, which the airlines have been increasing at a fairly rapid pace since 2015. In 2018, many major carriers are looking to increase capacity further with additional aircrafts and more flights.

If you're ready to jump into the domestic airlines' $190 billion aggregate market cap to grab a piece of the potentially high-flying profits, exchange-traded funds (ETFs) are a great way to diversify and hedge your risk. For a pure airline play, however, the market is surprisingly tight, with just one ETF focused solely on the industry. Still, you can put your money in a transportation ETF and gain some exposure to the airline industry. Here are the best ETFs in this sector for 2018. (See also: Top 3 Transportation ETFs.)

Note: Funds were chosen on the basis of strategy, performance and assets under management. All data is as of December 26, 2017.

SPDR S&P Transportation ETF (XTN)

Issuer: State Street SPDR

Assets under management: $215.0 million

YTD performance: 22.74%

Expense ratio: 0.35%

Price: $65.78

This fund is designed to track the S&P Transportation Select Industry Index, a broad-based index of equities in the U.S. transportation industry. There are currently 43 holdings in the fund's portfolio, which is heavily weighted toward ground freight at nearly 50%. Airlines take second place at just 26%, however the fund is equal weighted and still holds the top airlines in the U.S. Airline stocks in the portfolio include the following:

  • Allegiant Travel Company
  • Alaska Air Group Inc.
  • United Continental Holdings Inc.
  • Delta Air Lines Inc.
  • Southwest Airlines Co.
  • Spirit Airlines Inc.
  • American Airlines Group Inc.
  • SkyWest Inc
  • JetBlue Airways Corporation
  • Hawaiian Holdings Inc.

XTN is the cheapest in its segment with an expense ratio of 0.35%. Year-to-date (YTD) in 2017, the fund has a return of 22.74%. One-, three- and five-year annualized returns are 20.64%, 7.51% and 20.39% respectively. (See also: The Industry Handbook: The Airline Industry.)

iShares Transportation Average ETF (IYT)

Issuer: iShares

Assets under management: $891.6 million

YTD performance: 19.44%

Expense ratio: 0.44%

Price: $192.51

IYT tracks the Dow Jones Transportation Average Index, a handful of domestic transportation stocks chosen by the Dow Jones Average Committee. The Index is weighted by price. The unusual weighting scheme of one share for each security lends itself to overweighting the high-priced equities and underweighting the lower-priced stocks. The airline sector accounts for 19.95% of the fund's portfolio of 20 stocks.

YTD the Fund has a return of 19.44%. IYT's one-, three- and five-year annualized returns are 17.70%, 6.42% and 16.56% respectively. Southwest Airlines lands in the top 10 holdings. Other airline stocks include: Alaska Air Group, United Continental, Delta Air Lines, American Airlines and JetBlue Airways. (See also: Tips for Trading the Dow Jones Transportation Average.)

U.S. Global Jets ETF (JETS)

Issuer: U.S. Global Investors

Assets under management: $116.6 million

YTD performance: 19.78%

Expense ratio: 0.60%

Price: $33.31

This is the only pure-play airline ETF in the game at the moment. It's a relatively new fund with an inception date of April 30, 2015. JETS invests primarily in domestic airline companies and companies involved in the airline industry (aircraft manufacturers, terminal services companies and airports), although approximately 20% of its portfolio is in international companies.

JETS is heavily weighted toward large caps, with 63% of its holdings in these stocks. Overall, its investment strategy seeks to track the U.S. Global Jets Index, which is an index of airline stocks. Inclusion in the Index is based on standard factors such as market cap over $100 million and daily stock trading volume. JETS has a YTD return of 19.78%. (See also: Berkshire Still Looms Large for Airline ETF.)

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