Travel ETFs: Riding The Wave Of Consumer Demand

Travel ETFs: Riding The Wave of Consumer Demand” explores the heightened activity within the travel sector amid a robust 2024 summer season, surpassing pre-pandemic figures. The article delves into the performance and strategic positioning of five notable travel-focused ETFs—U.S. Global Jets ETF (JETS), Amplify Travel Tech ETF (AWAY), Defiance Hotel, Airline, and Cruise Line ETF (CRUZ), ALPS Global Travel Beneficiaries ETF (JRNY), and AdvisorShares Hotel ETF (BEDZ). Despite some operational challenges, the travel ETFs have demonstrated positive year-to-date performances, driven by sustained consumer enthusiasm for travel and evolving industry dynamics. The analysis underscores the long-term growth potential in the travel sector, suggesting that diversified ETF investments may offer a prudent pathway to capitalize on ongoing consumer demand. Have you ever wondered how to ride the wave of increasing consumer demand in the travel sector? With the advent of travel-focused Exchange Traded Funds (ETFs), investors now have an intriguing avenue to capitalize on this ever-growing market. As travel continues to rebound post-pandemic, the demand for such ETFs is on the rise, propelled by consumers’ unquenched thirst for exploration. In this article, we will delve into the nuances of various travel ETFs, their performance, and the headwinds and tailwinds shaping their trajectories.

Travel ETFs: Riding The Wave Of Consumer Demand

Understanding Travel ETFs

Travel ETFs are investment funds that focus on the travel and tourism sectors. These ETFs include a variety of stocks representing airlines, hotels, cruise lines, booking platforms, and other entities related to travel. By investing in a travel ETF, investors gain exposure to multiple companies in the industry, providing diversification and reducing single-stock risk.

The Current Travel Landscape

TSA data for the summer of 2024 indicates a significant surge in travel compared to both 2023 and pre-pandemic times in 2019. This uptick underscores consumers’ willingness to spend on travel-related activities, from airlines to hotels and rental cars.

Key Travel ETFs to Consider

There are several notable travel ETFs worth examining:

U.S. Global Jets ETF (JETS)

The U.S. Global Jets ETF, known simply as JETS, is the oldest and largest travel ETF, boasting over $1 billion in assets. It primarily focuses on the global airline industry, including passenger airlines, airline operators, and manufacturers.

Holdings Include:

• Passenger Airline Stocks: Southwest Airlines (LUV), American Airlines Group (AAL), Air Canada (AC)
• Travel Booking Companies: Expedia Group (EXPE), Booking Holdings (BKNG), TripAdvisor (TRIP)

This ETF is straightforward, concentrating 74% of its assets in passenger airline stocks while incorporating technology-oriented travel booking companies.

Amplify Travel Tech ETF (AWAY)

AWAY takes a unique approach by focusing on the “travel technology business,” which includes travel bookings, ride-sharing, price comparisons, and travel advice.

Holdings Include:

• Uber Technologies (UBER)
• Airbnb Inc (ABNB)

This ETF underscores the shift towards digitalization by emphasizing innovative and disruptive travel technologies.

Defiance Hotel, Airline, and Cruise Line ETF (CRUZ)

CRUZ offers a more traditional focus on the travel sector by encompassing hotels, airlines, and cruise lines without veering into tech-related companies.

Holdings Include:

• Hotels: Hilton Worldwide (HLT), Marriott International (MAR)
• Cruise Lines: Royal Caribbean Cruises (RCL), Carnival Corp (CCL)

It serves investors looking for exposure strictly within the travel industry’s established sects.

ALPS Global Travel Beneficiaries ETF (JRNY)

JRNY stands out by employing AI-driven algorithms to identify businesses exposed to travel trends, broadening its scope beyond conventional travel stocks.

Holdings Include:

• Luxury Retail: L’Oreal (OTCPK:LRLCF), Estee Lauder (EL)
• Payment Processing: American Express Co (AXP)

This thematic approach allows JRNY to hold a diverse range of companies spanning luxury retail to leisure.

AdvisorShares Hotel ETF (BEDZ)

BEDZ is the only actively managed ETF among its peers, focusing strictly on the hotel industry, including resorts, cruise lines, and booking websites.

Key Features:

• Active management aims for optimal sector picks, balancing performance and risk.
• It maintains competitive fees despite active management.

Long-Term Trends and Short-Term Challenges

While the performance of travel ETFs has been positive year-to-date (YTD), numerous short-term operational challenges have emerged. These headwinds include the impact of COVID-19, fluctuating demand, and ongoing operational issues.

Positive Trends:

1. Consumer Spending Shift: A notable shift from goods to services has been advantageous.
2. China’s Travel Spending Revival: The return of travel spending in China signifies a recovery.
3. Business Travel Recovery: Slowly yet steadily, business travel is recovering, benefiting ETFs like JETS and AWAY.

Example:

• Trip.com Group (TCOM): Noteworthy for its impressive 32.7% YTD performance, TCOM has capitalized on the rising travel demand in China.

Negative Trends:

1. Airline Profitability: Despite high travel demand, airline stocks have struggled due to:
   • Weaker pricing environments.
   • Profitability issues from increased labor and operational costs.
   • Delays in delivery of fuel-efficient aircraft.

Example:

• American Airlines (AAL): Down 22.6% YTD, reflecting the broader issues facing the airline sector.

Understanding ETF Holdings and Performance

A closer look at the performance and holdings of these ETFs reveals a complex picture. While some companies have thrived post-pandemic by leveraging shifting consumer interests toward experiences and innovations, others have been bogged down by operational inefficiencies.

Table: Sample ETF Holdings and Performance

ETF Strategies: Diversification and Risk Management

Investing in travel ETFs offers a strategic advantage: diversification. By holding a broad spectrum of stocks within the travel sector, ETFs inherently mitigate single-stock risk and capitalize on the sector’s overall growth.

The Role of Digitalization and Innovation

The travel industry’s ongoing shift toward digitalization, marked by the rise of app-based bookings and interactions, is a crucial tailwind for travel ETFs. Companies that adapt to and embrace these technological advances will likely thrive and drive index performances.

Looking Ahead: The Future of Travel ETFs

While the short-term challenges plaguing the travel sector are notable, they are often linked to operational and temporary issues that can be resolved. Over the long haul, the growing consumer demand for travel, burgeoning digital trends, and recovery in global travel sectors, especially business travel, are poised to bolster the performance of travel ETFs.

Conclusion

Travel ETFs present an intriguing mix of risk and reward. As they navigate through operational difficulties, their diversification and exposure to a booming industry position them well for potential growth. Whether it’s the traditional holdings of JETS or the innovative approach of AWAY, these ETFs offer investors a way to ride the consumer demand wave within the evolving travel sector. Investing in these funds can provide a balanced blend of growth potential, risk mitigation, and diversification, capturing the gauntlet that defines today’s travel landscape.

In a world increasingly enchanted by the allure of exploration, investing in travel ETFs might just be the ticket to harness the winds of change and ride the wave of consumer enthusiasm.