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Fund Spy

Will Big Airline Bets Keep These Funds Grounded?

Some good funds are banking on a U.S. airline industry turnaround.

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Airline stocks have been down in the dumps lately, as Morningstar stock analyst Marisa Thompson recently explained in her article, High Oil Prices Pack a Double Whammy for These Airlines. Rising oil prices have sent fuel costs through the roof, putting a major crimp in profit margins at a time when the airlines have already cut costs to the bone. Low-cost airlines such as  Southwest (LUV) and  JetBlue (JBLU), which held up much better than the big legacy carriers in the industry downturn that followed the 9/11 attacks, are now suffering as well. Air transport was one of the worst-performing stock categories in 2007, with big names such as JetBlue,  Continental (CAL), and  AMR (AMR) (parent of American Airlines) losing more than 40% of their value.

We decided to take a look at which mutual funds have the biggest percentage of their portfolios in airline stocks. The three funds with the biggest airline stakes all specialize in transportation stocks--Fidelity Select Air Transportation (FSAIX), Rydex Transportation (RYPIX), and Fidelity Select Transportation (FSRFX), with percentages of 33.04%, 19.44%, and 18.56%, respectively. To make it more interesting, we restricted our list to diversified stock funds. This eliminated the three transportation funds above plus two oddities--WorldCommodity, a natural-resources fund with less than $1 million in assets, and Kinetics Internet Emerging Growth (WWWEX), a technology fund with less than $3 million in assets.

With these restrictions in place, the following table shows the 10 diversified funds that hold the greatest percentage of airline stocks; we also show each fund's category, total assets, and percentile ranking within its category in 2007. Each of the funds on this list has at least one airline among its top 10 stock holdings.

David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.