Cruising through turbulence: Travel & Leisure ETFs 

After an emergency landing in 2020, Travel & Leisure ETFs are preparing for take-off. The flight route is turbulent, and the destination is unknown. In this article, we review the Travel & Leisure industry and explore its grounded ETF fleet. 

The 2020 pandemic effect on business

From airlines, cruise lines, and hotels to restaurants, tour companies, casinos, and theme parks, the travel and leisure industry is the lifeline of most economies. In normal conditions, it contributes to around 10% of global GDP and accounts for one out of every 10 jobs around the world.

Coming out of nowhere, a global pandemic struck in 2020, putting the industry on its knees. Nationwide lockdowns and global travel restrictions sent global international tourism arrivals down by 73%, resulting in an estimated loss of $1.3 trillion in global export revenues (United Nations World Tourism Organization- UNWTO) — more than 11 times the loss recorded during the 2009 global economic crisis. The crisis also wiped out 62 million jobs in the industry, many of them in small and medium-sized enterprises. Contributions from the travel and tourism sector as a percentage of global GDP — fell from 10.4% in 2019 to just 5.5.% in 2020.

In March 2020, panicking investors dumped their travel & leisure stocks, in of the worst selloffs in the industry's history. Indices that track the industry such as the Dow Jones U.S. Travel & Leisure, STOXX Europe 600 Travel & Leisure, and FTSE All Share Travel & Leisure took a nose-dive, falling by -30%, -35%, and -40% respectively, a lot more than the broader markets. 

Trackinsight, 2022

A wavy rebound for travel in 2021

In 2021, vaccines came in as cape-less heroes, easing travel restrictions and providing a breath of fresh air for people and global economies. As the travel & leisure industry began its ascent to normality, waves of COVID-19 variants like Alpha, Beta, Gamma, and Delta kept pinching, casting doubt on a full recovery. 

According to the latest data by UNWTO, the global tourism sector wasn't spared in 2021, with $2 trillion in lost revenue. Despite improvements in key travel metrics, travel demand was affected by uneven vaccination rates around the world and new COVID-19 strains like Omicron — which had prompted new travel restrictions in some countries during the holiday season.

2022 and beyond outlook for travel & leisure

While skies haven't cleared for travel & leisure, industry experts expect to see bluer skies on the horizon, projecting noticeable improvement in most related businesses.

Air Travel

Domestic travel demand is estimated to reach 93% of the pre-pandemic level in 2022 - an improvement of 20 percentage points from this year. Total passenger numbers are expected to increase to 3.4 billion next year from 2.3 billion in 2021, IATA estimates, but will be below 4.5 billion in 2019.

Hospitality (Hotels & Restaurants)

According to the Business Research Company, the global hospitality market is expected to grow +15% from $3.95 trillion in 2021 to $4.55 trillion in 2022. The growth is mainly due to the companies rearranging their operations to cope with the pandemic and the relaxation of restrictions following extensive vaccination campaigns in many parts of the world. The market is expected to reach $6.72 trillion in 2026 at a CAGR of 10.2%. 

Cruise lines

During an interview with TravelPulse.com, Cruise Lines International Association (CLIA) Vice President Charles Sylvia said that fleet capacity was at around 80% as of December 31st, 2021. The CLIA cruise line accounts for 95% of the cruise capacity worldwide, so around 275 ocean-going ships. Sylvia expects that by the end of the first quarter of 2022, 100% of the ships will be back in service. As for onboard capacity, cruise lines are managing them closely, putting in place protocols to ensure a safe cruise, he added.

Pent-up demand already has led to a huge surge in bookings in 2022 and 2023 from cruisers who have had their trips canceled or delayed because of the pandemic as well as new bookings from people who foresee cruising coming back safer than ever. 

In parallel, 32 new cruise ships will hit the waters in 2022, made up of 25 new ships on the cruise ship order book for 2022, plus an additional 7 vessels that were built in 2021.

Boarding the recovery flights with ETFs

There are hundreds if not thousands of publicly listed companies in the travel & leisure business. To hop on the recovery ride, exchange-traded-funds (ETFs) could be the medium. Travel & Leisure ETFs provide non-inclusive but diversified exposure to airlines, cruise lines, hotels, casinos, gaming, and other leisure and entertainment services — all businesses set to immensely benefit in the post-pandemic era. 

Many investors who are anticipating the revival have already pumped around $5 billion into Travel & Leisure ETFs over the last two years — hoping that the bought dip would translate into larger gains.

Here are some of the ETFs in play with their respective assets under management:

• U.S. Global Jets ETF: $3.21 billion
• Invesco Dynamic Leisure and Entertainment ETF: $1.30 billion
• iShares STOXX Europe 600 Travel & Leisure UCITS ETF: $270 million
• ETFMG Travel Tech ETF: $254 million
• Harvest Travel & Leisure Index ETF: $151 million
• Mirae Asset TIGER Tour Leisure ETF: $117 million
• Lyxor STOXX Europe 600 Travel & Leisure UCITS ETF: $106 million
• Defiance Hotel, Airline, and Cruise ETF: $24 million
• HANetf Airlines, Hotels and Cruise Lines UCITS ETF: $15.26 million
• Invesco STOXX Europe 600 Optimised Travel & Leisure UCITS ETF: $12 million
• SonicShares Airlines, Hotels, Cruise Lines ETF: $10.8 million
• HANetf U.S. Global Jets UCITS ETF: $5.24 million

1 – U.S. Global Jets ETF

The U.S. Global Jets ETF (JETS) provides investors access to the global airline industry, including airline operators and manufacturers from all over the world.

The United States has the highest allocation (75.06%), followed by Canada (4.85%), Japan (2.83%), Brazil (2.22%), and France (2.10%) among others.

In terms of industry exposure, Airlines have the biggest slice (73.96%). Next in line are Transportation Infrastructure (12.86%), Internet Media & Services (8.04%), Commercial Services (2.94%) and Transportation (1.94%). The top 10 holdings include Delta Airlines (10.28%), United Airlines Holdings (10.26%), Southwest Airlines (9.6%), Alaska Air Group (3.17%), and Air Canada (3.01%).

JETS has an expense of 0.6% and trades on the New York Stock Exchange.

2 – Invesco Dynamic Leisure and Entertainment ETF

The Invesco Dynamic Leisure and Entertainment ETF (PEJ) is based on the Dynamic Entertainment Intellidex Index. It provides exposure to 30 U.S. companies that are mainly engaged in the design, production, or distribution of goods or services in the leisure and entertainment industries, including Hotels, Restaurants & Leisure (51.95%), Entertainment (19.64%), Media (12.44%), Food & Staples Retailing (7.57%), Interactive Media & Services (5.43%) and Airlines (2.97%). 

Top holdings include Booking Holdings (5.3%), Mariott International (5.21%), Expedia Group Inc. (5.2%), Sysco Corp. (5.14%), Live Nation Entertainment (5.11%), McDonald's Corp. (5.1%), Walt Disney Co. (5.06%), Chipotle Mexican Grill (4.54%), Hyatt Hotels (3.07%), and Discovery (3.0%). 

PEJ has a total expense ratio of 0.55% and trades on the NYSE Arca.

3 – iShares STOXX Europe 600 Travel & Leisure UCITS ETF

Offering exposure to the most touristic continent on the planet, the iShares STOXX Europe 600 Travel & Leisure UCITS ETF (EXV9) invests in companies from the European travel & leisure sector. 

In terms of country exposure, the United Kingdom has the lion's share (31.95%), followed by Ireland (28.67%), Sweden (16.49%), France (14.58%), and Spain (4.21%). 

The fund has a high concentration in the top 5 names (55%), which includes Flutter Entertainment (Sports betting/ gambling /gaming, 20.4%), Evolution (Gaming / Online Casino, 14.41%), Entain PLC (Sports Betting/Gambling, 10.18%), Intercontinental Hotels Group (Hotels, 9.65%) and Ryanair Holdings (Airline, 8.26%).

The fund has a total expense ratio of 0.46% and trades on the Berne Stock Exchange (SXTPEX, EUR) and Xetra (EXV9, EUR).

4 – ETFMG Travel Tech ETF

The ETFMG Travel Tech ETF (AWAY) tracks the Prime Travel Technology Index NTR, a portfolio of companies engaged in the “Travel Technology Business”. These companies provide technology via the internet and internet-connected devices to facilitate travel bookings and reservations (52%), ride-sharing and hailing (14%), travel price comparison (17.53%), and travel advice (17.53%).

The fund's 32 holdings include Uber Technologies (5.00%), Booking Holdings (4.96%), Expedia Group (4.94%), eDreams ODIGEO (4.45%), Tripadvisor (4.41%), Sabre Corp. (4.37%), Airbnb (4.34%), Amadeus IT Group (4.28%), Lyft (4.2%) and Corporate Travel (4.11%).

AWAY has an expense ratio of 0.75% and trades on the NYSE Arca.

5 – Harvest Travel & Leisure Index ETF

The Harvest Travel & Leisure Index ETF (TRVL) tracks the Solactive Travel & Leisure Index TR and invests in large-capitalization companies that own or operate travel-related businesses.

In terms of sub-sector allocation, Hotels, Resorts & Cruise lines have the highest weighting (56.7%), followed by Airlines (19.2%), Casinos & Gaming (16.4%), Hotel & Resort REITs (4.7%), and Leisure Facilities (2.7%)

Among the biggest names are Booking Holdings (10.1%), Airbnb (9.8%), Marriot International (9.2%), Hilton Worldwide Holdings (8.7%), Delta Air Lines (5.1%), Expedia Group (5.1%), Southwest Airlines (5.1%), Caesars Entertainment (3.9%), MGM Resorts International (3.7%), and Carnival Corporation (3.6%)

The fund has an expense ratio of 0.4% and trades on the Toronto Stock Exchange and the NEO Exchange in Canada.

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