Thematic ETFs to Tap Into Potential Growth Opportunities Ahead

Investors can look to travel industry and green hydrogen sector-related thematic ETFs to help enhance their portfolios with potential growth opportunities ahead.

In the recent webcast, A Tale of Two Themes: Green Hydrogen and Travel, Sylvia Jablonski, CEO and CIO of Defiance ETFs, highlighted the rebound in the tourism and travel industries. According to the latest UNWTO World Tourism Barometer, the international tourist arrivals almost tripled from January to July 2022 to +172% compared to the same period of 2021, reflecting almost 60% of pre-pandemic levels. COVID vaccines, restrictions, and boosters are being less respected by world travelers. There are now more countries and territories that welcome any U.S. traveler without restrictions.

“The steady recovery reflects strong pent-up demand for international travel as well as the easing or lifting of travel restrictions to date,” Jablonski said.

Looking ahead, Jablonski argued that personal travel should also provide a tailwind for the airline, hotel, and cruise industries. Domestic business travel is finally picking up, and volume is expected to reach 81% of pre-pandemic levels in 2022 and 96% in 2023. Hotels and airlines should grow as corporate travel picks up and as some employees move away from the work-at-home and hybrid models and conferences begin to shift back to in-person locations.

The airline industry is taking off. According to Fitch, U.S. revenue passenger miles are expected to end 2022 at 10% to 15% below pre-pandemic levels. According to Moody’s, operating profits for rated airline companies are expected to grow by more than 200% in 2023.

The hotel industry is also bouncing back. The U.S. hotel industry reported its highest room rate in July 2022, with occupancy at 69.9%. If we ignore inflation, the hotel industry has already showed a positive change in average daily rate and revenue per available room when compared to pre-pandemic levels. We are also in the midst of the holiday travel season as well.

According to Grand View Research Inc., the global cruise market size is expected to reach $15.1 billion by 2028 with a CAGR of 11.0% during the projected 2022 to 2028 period. The growth is largely driven by the popularity of theme cruises that attract various consumer groups.

“2022 could see pent up demand ready to realign with a travel resurgence. And investors are wondering how to position themselves to benefit,” Jablonski said.

As a way to capture these rebounding travel and tourism industries, investors can turn to something like the Defiance Hotels, Airlines, and Cruise ETF (CRUZ). CRUZ can give retail and institutional investors exposure to a cross-section of travel-related companies believed to have significant growth potential. It seeks to track the performance before fees and expenses of the BlueStar Global Hotels, Airlines, and Cruises Index, a rules-based weighted index of companies primarily engaged in the passenger airline, hotel, and cruise industries.

The BlueStar Global Hotels, Airlines, and Cruises Index is a rules-based index that consists of globally-listed stocks of companies that derive at least 50% of their revenues from the passenger airline, hotel and resort, or cruise industries as determined by MV Index Solutions.

Additionally, Paul Dellaquila, president of Defiance ETFs, underscored the opportunity in H2 as an alternative energy source. Hydrogen is the most abundant element in the world. The energy is clean, flexible and can lead to zero-carbon emissions. In addition, it is highly efficient and more powerful than fossil fuels.

Dellaquila noted that H2 has many different applications across various global industries, which could provide multiple growth opportunities. For example, H2 can help generate power, enable fuel-based production, be used in various chemical and manufacturing industries, and be used to synthesize other fuels, among other applications.

The Defiance Next Gen H2 Fund (HDRO) can give investors exposure to companies involved in the development of hydrogen-based energy sources and fuel technologies. HDRO’s underlying index, the BlueStar Hydrogen & NextGen Fuel Cell Index, can include up to a 15% weight in non-pure play companies, though it does not include vehicle manufacturers. To be eligible, companies must meet size and liquidity requirements that can be drawn from developed and developing markets.

Financial advisors who are interested in learning more about the travel and hydrogen sector can watch the webcast here on demand.