Travelers tired of being cooped up during the pandemic are hitting the road with a vengeance. And you can cash in on this "revenge travel" trend with stocks and ETFs beyond the S&P 500.
Nine U.S.-listed stocks in the Defiance Hotel, Airline and Cruise ETF, including SkyWest, Carnival and Royal Caribbean Cruises, jumped more than 45% this year, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. That's impressive as it even outperforms the 44.5% gain of the Technology Select Sector SPDR ETF, which is attracting the most attention of all the S&P 500 sectors.
Investors might be looking for ways to capitalize on the surge in travel and resulting gains in travel stocks. "There has been a long-term shift in consumer spending away from physical goods and toward services and experiences, which has been reflected in recent earnings reports of airlines and cruise lines," said Roxanna Islam, associate director of research at VettaFi.
Surge In Travel Demand
The uptick in travel demand is explosive after most people holed up all of 2020 and 2021. And ETFs help investors spread their bets over many parts of the rebounding industry. They also let them capture part of the top performers, which is tougher when buying individual stocks.
"Cruise lines have seen the highest outperformance among travel stocks after multiyear losses post-pandemic," Islam said.
"There are many milestones we've hit over the last 2 years, and this past quarter is no exception," said Carnival CEO Josh Weinstein to analysts in the June earnings call. "There was much to celebrate in the second quarter. We reached a meaningful inflection point for revenue with net yield surpassing (2019's) strong level."
Simply owning the S&P 500 doesn't expose investors to the travel rally's full power, though. SkyWest, the top performing stock in the Defiance Hotel, Airline and Cruise ETF, is up 154% this year. But SkyWest is not in the S&P 500. But it's a 0.43% weight in the ETF.
Meanwhile, Carnival is up 123% so far in 2023. The cruise stock, though, is just a 0.05% weight in the S&P 500. Carnival holds a 7.4% weight in the ETF.
"Investors may prefer to use ETFs to invest in the travel rebound since the outperformance is based on a broad industry shift rather that company-level factors," VettaFi's Islam said.
Choosing A Travel ETF Beyond The S&P 500
The travel industry spans multiple sectors and indexes. So it's natural to expect diversity in the travel ETFs.
Defiance Hotel, Airline and Cruise attempts to be the broadest pure-play travel ETF, Islam said. With its nearly 6o positions, the ETF holds hotels, airlines, and cruise lines.
Other travel ETFs narrow their focus on specific segments. ALPS Global Travel Beneficiaries holds hotels and airlines, too. But "it is a thematic play that also has an allocation toward travel beneficiaries like luxury goods and consumer finance," Islam said.
Additionally, some travel ETFs dial down even more. U.S. Global Jets ETF concentrates its 51 positions just on airlines. Meanwhile AdvisorShares Hotel ETF and Kelly Hotel & Lodging ETF zero in on hotels. And ETFMG Travel Tech puts its $117 million in assets on 35 tech companies like Airbnb and Expedia.
That's not to say investing in travel ETFs won't bring risks. For instance, gains on travel ETFs will lag the industry's runaway leaders.
"Some investors, however, may prefer to take advantage of gains in only the highest performing stocks like the cruise lines instead of diversifying with some of the lower performing holdings in travel ETFs like hotel REITs," Islam said.
Top Performing U.S.-Listed Travel Stocks
All are in Defiance Hotel, Airline and Cruise ETF
| Company | Identifier | YTD |
|---|---|---|
| SkyWest | 156.6% | |
| Carnival | 125.2 | |
| Royal Caribbean Cruises | 101.1 | |
| Allegiant Travel | 89.3 | |
| Norwegian Cruise Line Holdings | 72.7 | |
| Controladora Vuela Compania de Aviacion | 63.9 | |
| Delta Air Lines | 47.7 | |
| American Airlines Group | 46.2 | |
| United Airlines Holdings | 45.4 |
