The Airline Sector has been on a roll recently. Today in fact the AMEX Airline Index (XAL) gained about 1.8%, while the S&P 500 Index (SPX) was down around 0.3%. This group has long been disliked on a fundamental basis due to their low profit margins, poor balance sheets, and unwieldy cost structures.

However, the tape tells all, as they say, and this group has been very strong in the 3rd quarter of 2009. Take a look at how an Airline ETF, Claymore Arca Airline (FAA), has performed versus the S&P 500 ETF (SPY) since July of this year:

FAA vs SPY Performance Chart Since July


You can see that since July, the FAA has gained over 50%, while the SPYders are up around 16%. However, stepping back a bit to January of this year when FAA was launched, the relative performance isn't nearly as strong. If you examine the following chart, you can see that FAA lagged the SPY in terms of performance, and is basically playing "catch up" currently.

FAA vs SPY Performance Chart Since Inception


Always take a look at an ETF's holdings to determine what it actually is invested in (and how diversified it is, etc.). As of June 30th, FAA was highly concentrated in 3 names: Continental Airlines (CAL), Delta Airlines (DAL), and Southwest Airlines (LUV) -- see the following table. These 3 stocks comprised about 45% of the holdings, and thus would have a fairly large influence on the ETF's performance.

FAA Top 10 Holdings


The bottom line to me is that while I've never cared for this sector from a fundamental perspective and would not recommend it as a buy for long-term investors, the short-term trend is up. The outperformance vis-a-vis the general market is striking ... and you should ride the trend higher while it continues.

Price Headley is the founder and chief analyst of BigTrends.com.