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Rally in Travel and Tourism ETFs Set to Continue

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The travel and tourism industry, which was hit by the Delta variant of COVID-19 for months, staged a nice comeback last week. This is especially true as airline stocks along with online booking sites, ride-hailing, entertainment and leisure companies spiked on a few earnings announcements, a better-than-expected October jobs report and Pfizer’s (PFE - Free Report) encouraging drug for treatment of the novel virus.

Airbnb (ABNB - Free Report) and Expedia Group (EXPE - Free Report) delivered solid results for the third quarter. The travel disruptor had its strongest quarter ever with revenues soaring 67% from the year-ago period and coming in 36% higher than the level two years ago prior to the pandemic. On the other hand, Expedia’s revenues climbed 97% year over year with a 117% increase in gross bookings. Airbnb shares jumped 12.1% and Expedia shares surged 15.1% on the earnings announcement.

Hiring picked up in October following a summer slowdown. The U.S. economy added 531,000 jobs with new jobs in several categories such as manufacturing, hospitality, professional and business services, and unemployment dropped to 4.6%. Meanwhile, Pfizer announced that its COVID-19 drug, used with an HIV drug, has reduced the risk of hospitalization and deaths substantially by 89% that will likely speed up travel plans (see: all the Industrial ETFs here).

That said, travel and tourism ETFs jumped on the Nov 5 trading session. We have highlighted them below:

SonicShares Airlines, Hotels, Cruise Lines ETF (TRYP - Free Report) – Up 6.6%

This fund provides exposure to a global portfolio of companies that are focused on what many investors consider to be the “core” of business and leisure travel: the airline, hotel and cruise line industries. It tracks the Solactive Airlines, Hotels, Cruise Lines Index, holding 60 stocks in its basket with well spread-out exposure. TRYP newly launched in the space in May and has accumulated $5.1 million in its asset base so far. It trades in an average daily volume of 26,000 shares and charges 75 bps in annual fees.

U.S. Global Jets ETF (JETS - Free Report) – Up 6.4%

This fund provides exposure to the global airline industry, including airline operators and manufacturers from all over the world, by tracking the U.S. Global Jets Index. In total, the product holds 51 securities that are heavily concentrated on the top four firms with double-digit exposure each. Other firms hold no more than 3.1% share. The fund has gathered $3.5 billion in its asset base and sees a heavy trading volume of 5.9 million shares a day. It charges investors 60 bps in annual fees and has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Earnings or Oil: What Will Impact the Airlines ETF Ahead?).

ETFMG Travel Tech ETF (AWAY - Free Report) – Up 5.4%

This is the first ETF that offers direct access to the technology-focused global travel and tourism industry. It follows the Prime Travel Technology Index, charging investors 75 bps in annual fees. The fund holds 36 stocks in its basket with travel bookings & reservations companies accounting for 51.9% of assets, followed by 17.5% share in travel advice firms. AWAY has accumulated $326.3 million in its asset base and trades in an average daily volume of 190,000 shares.

AdvisorShares Hotel ETF (BEDZ - Free Report) – Up 4.9%

This fund has also newly debuted in the space. It has accumulated $9.9 million in its asset base since late April. It is the actively managed and only ETF investing exclusively in the global hotel and travel-related services. The product holds 31 stocks in its basket that are pretty spread across components. It charges 79 bps in annual fees and trades in an average daily volume of 9,000 shares.

Defiance Hotel, Airline, and Cruise ETF (CRUZ - Free Report) – Up 4.8%

This product tracks the BlueStar Global Hotels, Airlines, and Cruises Index, which measures the performance of globally listed companies primarily engaged in the travel and tourism industries. Holding 53 stocks in its basket, American firms make up for 45.8% of the portfolio while Panama, Japan and the United Kingdom round off the next three with single-digit exposure each. CRUZ, launched in June, has gathered around $16.6 million in its asset base and charges 45 bps in annual fees. Volume is lower as it exchanges around 12,000 shares a day on average.

ALPS Global Travel Beneficiaries ETF (JRNY - Free Report) – Up 4.2%

This ETF, which was launched on Sep 9, provides diversified exposure to the global travel industry by tracking the S-Network Global Travel Index. The fund’s portfolio invests in 75 companies engaged in booking and rental agencies, airlines and airport services, hotels, casinos, and cruise lines, along with travel-related companies identified through machine learning algorithms, such as luxury retail, entertainment, leisure, food and beverage, and payment processing vendors. JRNY has accumulated $8.4 million in its asset base and charges 65 bps in annual fees. It trades in an average daily volume of 8,000 shares.

Solid Outlook

The solid trend is likely to continue heading into the holiday season given the reopening of domestic and international borders for traveling.

The United States plans to lift the travel restrictions and reopen to fully vaccinated international travelers on Nov 8. The combination of the news boosted enthusiasm for economic recovery and shows clear signs of a recovery in travel. In fact, airlines recently signaled a solid travel trend. Delta Air Lines said its international bookings surged 450% in the six weeks since the United States announced it’s reopening to fully vaccinated travelers from abroad. The news has helped propel a 13% rally in the stock last week, the biggest since November 2020. American Airlines (AAL - Free Report) jumped 14% and Southwest Airlines (LUV) gained more than 10% for the week (read: Travel & Tourism ETFs to Gain on Easing U.S. Travel Restriction).

With early positive signs in the fourth quarter and many countries announcing new openings to international travelers, investors are now feeling increasingly confident about a continued recovery thereby boosting travel demand. Further, airlines anticipate robust holiday travel demand after over a year of travelers being stuck at home.

The emergence of COVID-19 vaccine boosters is also helping to drive demand for the industry. Moreover, the $1.2 trillion infrastructure bill, which has been passed by the House of Representatives and awaiting President Joe Biden signature, will also provide fuel to the travel industry. The bill would put $550 billion of new funding into transportation projects, the utility grid, and broadband. Including $110 billion for roads, bridges and other major projects, along with $66 billion for passenger and freight rail, and $39 billion for public transit.