The travel and leisure industry is climbing its way back from the worst days of the coronavirus pandemic, but the various sub-industry segments in this group don’t move in unison.
That’s something for investors to keep in mind, particularly when it comes to airline stocks — a market segment that often frustrates investors. Among exchange traded funds, the ALPS Global Travel Beneficiaries ETF (NYSEARCA: JRNY) provides an alternative to direct airline exposure.
JRNY, which tracks the S-Network Global Travel Index, offers airline exposure, but the fund’s course isn’t solely determined by that often-volatile industry. That could be a point in JRNY’s favor, as the global airline recovery could be muted.
“Rising vaccine coverage, particularly in large economies that provide much of the base for air travel demand, along with loosening border restrictions are expected to drive a material rebound in traffic,” says Fitch Ratings. “However, potential outbreaks, lingering restrictions, and a slower rebound in business travel will keep travel below 2019 levels until 2024.”
Airline equities are more of a complement to a broader portfolio than a primary source of price action in JRNY. Think of the ETF’s airline exposure as a potential sweetener in a comprehensive basket of travel equities, some of which are already exhibiting strength. For investors, JRNY’s diversification is relevant because airline stocks could encounter turbulence in 2022.
“While Fitch expects a significant recovery in business travel driven by companies returning to office and growing Zoom fatigue, the degree of the recovery remains uncertain. Lower levels of business demand may contribute to margin pressures as the business cabin is typically the highest margin contributor, particularly for legacy carriers,” adds Fitch.
JRNY can offset those issues with other holdings, such as casino operators. In the U.S., the gaming industry set an annual revenue record. That’s a sign that Americans want to get out and travel again, which could benefit airlines. Moreover, strength in the casino space could be indicative of a healthy consumer providing benefits to other JRNY member firms, such as luxury retailer, food, and beverage names.
“In spite of the Omicron variant, we remain bullish on the domestic casino recovery, particularly in Las Vegas, where record earnings are poised to accelerate with the expected return of international visitors and convention business throughout 2022 and 2023,” writes CBRE analyst John DeCree in a recent note.
Other travel and leisure ETFs include the VanEck Vectors Gaming ETF (BJK) and the U.S. Global Jets ETF (JETS).
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
