DEFINITION of 'Airline Industry ETF'

A sector exchange-traded fund (ETF) that invests in stocks of airline companies, so as to obtain investment results that correspond to those of an underlying airline index. Because of the very limited number of airlines in most nations, an airline ETF is unlikely to be restricted only to domestic carriers, but would very likely include foreign carriers as well.

BREAKING DOWN 'Airline Industry ETF'

The airline industry is susceptible to a number of factors that can affect demand for air travel, such as recession, terrorist action, and weather-related disruption. An airline ETF may underperform at such times, as well when fuel prices are surging, since the cost of aviation fuel has a major impact on airline profitability.

By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, you have to pay the same commission to your broker that you'd pay on any regular order

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