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A Pureplay ETF on Leisure from SonicShares in the Offing

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While 2020 was horrendous for the global economy, 2021 has brought with it much optimism. Wider vaccination coverage and back-to-back announcements of COVID-19 vaccine success have made the case for reopening trades stronger (read: ETF Strategies to Follow With U.S. Economy Slowly Reopening).

Increasing vaccination from the likes of Pfizer-BioNTech and Modena coronavirus vaccines bode well for the broader equity market. Ebbing coronavirus cases amid growing vaccination pushed investors toward the cyclical stocks. President Biden also indicated that he would make all adults eligible for vaccines by May 1.

Among the recent positive developments on vaccines, Novavax (NVAX - Free Report) announced very impressive updates on its protein-based COVID-19 vaccine candidate, NVX-CoV2373. The company’s vaccine candidate has delivered final efficacy of 96.4% in a pivotal phase 3 trial in the U.K., against mild, moderate and severe diseases caused by the original COVID-19 strain (read: Novavax ETFs to Shine Bright on Positive Vaccine Update).

On Feb 27, the United States sanctioned Johnson & Johnson's (JNJ - Free Report) COVID-19 vaccine for emergency use, giving the nation a third shot to fight the outbreak, after BioNTech/Pfizer and Moderna (read: How to Trade USFDA's EUA to J&J Vaccine With ETFs).

This along with the signing of the $1.9 trillion COVID-19 relief bill in the United States, which includes $1,400 stimulus payment, is a great positive for reopening-friendly stocks. Analysts surveyed by MarketWatch now expect the U.S. economy to expand a havoc 6% in 2021. The Fed has also indicated that it will not hike rates anytime soon as inflation levels are still tame.

A Pureplay Leisure ETF in the Offing

All the above-mentioned optimistic factors put airlines, hotels, cruise lines – the hardest hit amid the coronavirus-led lockdowns and even after the lifting of such restrictions in 2020 – in a sweet spot. The stocks from these spaces offer great value propositions and were thus noticed by ETF issuers. As a result, SonicShares recently filed for an Airlines, Hotels, Cruise Lines ETF.

The proposed fund looks to track the performance, before fees and expenses, of the Solactive Airlines, Hotels, Cruise Lines Index. The index is rules-based and offers exposure to a global portfolio of companies identified as being in the airline industry, hotel industry and the cruise line industry.

There are also certain rules that every rebalancing will follow. These are:

Airline Companies - 4.5% allocation to each of the top three Airline Companies in the index with the largest market capitalization.

Hotel Companies - 4.5% allocation to each of the top three Hotel Companies in the index with the largest market capitalization.

Cruise Line Companies - 4.5% allocation to each of the top three Cruise Line Companies in the index with the largest market capitalization.

Rest of the index components are weighted based on market capitalization subject to a cap of 4%.

Will It See Success?

The proposed fund should not see any difficulty in amassing enough assets, if approved. This is because there is not much competition in the leisure ETF segment. The Solactive Travel & Leisure Index, which has global exposure, has gained 28.4% this year on hopes of faster-than-expected return to normalcy.

As far as the competition is concerned, the space has Invesco Dynamic Leisure & Entertainment ETF (PEJ - Free Report) . It charges 63 bps in fees. Then there is a pureplay airlines ETF — U.S. Global Jets ETF (JETS - Free Report) . It charges 60 bps in fees (read: U.S. Consumer Inflation Moderate: ETFs to Win).

The transportation ETF iShares Transportation Average ETF (IYT - Free Report)  also offers somewhat similar exposure.  Investors may get to have some exposure to casino hotel stocks via VanEck Vectors Gaming ETF (BJK - Free Report) . The funds JETS and BJK charge 42 bps and 65 bps, respectively.

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