Stay Away From These Industry Focused ETFs

The economic impact caused by governments around the world to combat the spread of Covid-19 and save lives has taken its toll on nearly every industry. However, while there are arguments to be made that most of those industries will “bounce” back in a reasonable fashion, there is one in particular that truly may never be the same. Or at the very best not until we see a truly effective treatment for Covid-19 or a vaccine.

That industry is travel and leisure-tourism. The airlines have been battered, hotel stocks have been beaten up, and if tourist attractions around the world where publicly traded companies, most of them would have likely already filed for bankruptcy (mild attempt at a joke, you will still be able to visit the Grand Canyon and the pyramids in Egypt in the future.)

But in all seriousness, how long until you will feel comfortable going to New York city and jumping in an elevator to head to the top of the Empire State building? Or even fly to Denver, to stay in a crowded Vail Resorts owned ski resort and then sit on a chair lift or gondola with strangers? How about walk around and stand in lines at an amusement park? Go to a large sporting event or music venue?

While there are certainly some readers thinking they would do all of these activities tomorrow if they could, some may not feel that way, and it’s hard to tell how many people are on each side of this debate. So, there is already let’s call it half of the potential “pool” of customers not willing to partake in these activities.

To make matters worse, we are currently sitting with over 30 million American’s on the unemployment line, further shrinking the “pool” of potential customers for travel and leisure businesses. And that’s not even mentioning the millions of other Americans who may just have concerns about the economy in general and not feel comfortable spending money on vacations that require air travel and large crowds. Don’t get me wrong I genuinely believe we will see a lot of American’s out and about this summer when government restrictions on leaving home are removed. However, we can expect social distancing requirements will still be in effect, therefore perhaps beach vacations or camping trips will be more prevalent this year compared to others.

As I have said, no one knows what is going to happen with Covid-19 and how people will react in the future. However, there are a few ETFs that focus on the travel and leisure industry, which you may still want to avoid, at least for the time being and until we see how consumers ease back into their “new normal” lifestyles.

The first is the US Global Jets ETF (JETS). This ETF saw a huge fall in March when it went from more than $30 per share down to just under $13 per share. It tried to bounce back and got as high as $16.82 before the end of March, but spent most of April below $15 per share. This is a true pure-play airline ETF, meaning that it doesn’t have the diversity of other businesses in the travel and leisure industry to help prop up the value of the ETF. We all know the airline industry is not going to go out of business, so long-term, this is a good ETF to have on a watch list. But buying it today could mean that you are willing to sit on it and likely realize very little if any return for potentially a very long time.

The next ETF is the ETFMG Travel Tech ETF (AWAY). This ETF tracks global travel technology companies and gives investors direct access to the worldwide travel and tourism industry. AWAY owns all the big dot com booking websites, ride-hailing companies, and a few other travel industry-focused firms. Like JETS, AWAY is very heavily invested in the travel and tourism industry, but instead of from the airline or hotel side, the technology side by helping make it easier for people to book vacations and travel plans. AWAY is a new ETF with an inception date of February 12, 2020. The ETF traded around $24 per share during its first month and has bounced off its lows of $12, but it’s still too early to tell how well these dot com travel sites can withstand a limited booking environment.

Finally, I would like to talk about the Invesco Dynamic Leisure and Entertainment ETF (PEJ), an ETF I have mentioned before. PEJ is down 35% year-to-date, 33% over the last 3 months but up 16% in the last month. While it also is off its lows, PEJ is heavily invested in the entertainment and leisure industry with Walt Disney, Southwest Airlines, Hilton Hotels, Delta Airlines, and Manchester United, all sitting in its top 10 holdings. Although some of its other holdings like Chipotle Mexican Grill and Domino’s Pizza may be holding their own during these tough times, the ETF is still very exposed to the economy fully opening up and people being willing and wanting to travel as we all did in the past.

I would add PEJ, as well as JETS and AWAY, to my watch-list now, but not yet pull the trigger until we see some hint of strength to the travel and tourism-leisure industry. Just because a stock or an ETF has been beaten down, doesn’t mean it’s a ‘good’ buy today, in the investing world those stocks are often referred to as ‘value-traps’ and right now is not the time you want to be trapped when there are so many other better, safer deals to be had in the market.

Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513

Disclosure: This contributor did not hold a position in any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

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