Memorial Day at the end of May marks the start of the summer travel season in the United States. And this year, according to the US Travel Association, “about 6 in 10 Americans are planning at least one summer trip.”
In 2019, before the coronavirus pandemic, the travel and tourism industry contributed well over $1 trillion to the US gross domestic product ( ).
As Americans prepare to take advantage of a more open world this summer, investors are looking for stocks in the travel and leisure sector that have the potential to boost their earnings and profitability.
Warmer weather, as well as time off from work and school, will also stress leisure and entertainment businesses, as this year “spending is expected to be 14% above the pre-pandemic peak, after the plunge of 2020.”
However, consumers and businesses are also watching closely, especially soaring energy prices. Furthermore, the current geopolitical tensions and the resurgence of COVID-19 cases in China still imply potential setbacks for the recovery of the travel sector.
Thus, volatility in the stock prices of travel and leisure companies could continue well into the summer. So far in 2022, the index has lost 26.6%. Similarly, the index is down 20.2%.
Armed with this information, today’s article features two exchange-traded funds (ETFs) worthy of readers’ attention ahead of the summer travel season.
1. Invesco Dynamic Leisure and Entertainment ETF
- Current price: $40.44
- 52 week range: $38.29 – $54.62
- Dividend yield: 0.52%.
- Expense ratio: 0.55% per year
Our first fund, the Invesco Dynamic Leisure and Entertainment ETF (NYSE:), provides access to stocks of leisure and entertainment companies. It started trading in June 2005.
The PEJ, which tracks the Dynamic Leisure & Entertainment Intellide Index, currently holds a basket of 31 stocks. The top 10 names account for almost half of the net assets of $1.3 billion. In other words, it is a concentrated fund.
Sysco (NYSE:), which distributes food and related products, McDonald’s (NYSE:), Marriott International (NASDAQ: ); the online travel agency Booking (NASDAQ:); Fox Corp (NASDAQ:); and Walt Disney (NYSE:) are the main names on the list.
About half of the companies in the portfolio belong to the hotel, restaurant and leisure segment. This is followed by companies in the entertainment sector (30.8%), followed by media (13.4%), food and staples retailing (4.7%) and interactive media and services ( 2.8%).
The PEJ has lost about 17% since January and 5% over the past 12 months. It hit a record high on June 2, 2021, but is currently changing hands at a 52-week low. Traders watching price and time cycles to analyze potential inflection points might want to pay attention to current levels.
The tracking P/E and P/B ratios are 33.05x and 4.85x. A potential drop below $40 would improve the safety margin for readers who expect US consumer spending to remain strong in the months ahead….
2. SonicShares Airlines Hotels Cruise Lines ETF
- Current price: $4.16
- 52 week range: $3.80 – $6.35
- Expense ratio: 0.75% per year
Recent data indicates that the global tourism market could grow from $3.95 trillion in 2021 to $4.55 trillion this year, at a compound annual growth rate (CAGR) of over 15%. The World Travel and Tourism Council (WTTC) predicts that the tourism and travel industry will create nearly 126 million new jobs worldwide over the next decade.
The next fund on our fund list is the SonicShares™ Airlines, Hotels, Cruise Lines ETF (NYSE:). It provides exposure to a global portfolio of companies in the airline, hotel and cruise industries.
TRYP tracks the Solactive Airlines, Hotels, Cruise Lines index. The fund was launched in May 2021 and oversees $11.42 million in net assets, so it is a relatively new and small fund without much trading history.
With a portfolio of 61 mid- and large-cap (cap) companies, the fund is heavily weighted to those based in North America (65.8%). The other companies come from Europe (17.4%), Asia/Pacific (16.2%) and Central and South America (0.7%).
In terms of sub-sector allocations, we find hotels, restaurants and leisure (39.7%), airlines (38.6%) and real estate equity investments (21.7%). The top 10 positions represent almost half of the fund.
These names include VICI Properties (NYSE:), Host Hotels & Resorts (NASDAQ:), Marriott International, Delta Air Lines (NYSE:), Hilton Worldwide Holdings (NYSE:) and Southwest Airlines (NYSE:).
TRYP hit a 52-week low on March 8 and is down 10.4% YTD and 18.5% YTD. Buy-and-hold investors might want to keep TRYP in their sights.
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Bet on travel and leisure on the stock market for the summer season with these 2 ETFs | Investing.com