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Ready for take-off: Is now a good time to invest in a travel ETF? – MoneySense

According to recent data from the United Nations World Tourism Organization (UNWTO), over 900 million tourists travelled internationally in 2022—double the number recorded in 2021, though still just 63% of pre-pandemic levels. For 2023, the UNWTO forecasts further recovery, to between 80% and 95% of pre-pandemic levels. 

Travel and tourism is one of the largest sectors of the global economy: Prior to the pandemic, in 2019, it contributed $9.63 trillion to global GDP (all figures in U.S. dollars). In 2020, with much of the world under lockdown, that figure fell to $1 trillion, but it rebounded to $5.81 trillion in 2021—and it’s expected to keep rising.

Signs of growth: Is there money to be made in travel industry stocks?

Things are looking up for the travel sector, for several reasons. The biggest one is that people are returning to their pre-pandemic travel patterns—even cutting back on other types of spending in order to splurge on holidays, according to RBC’s Consumer Spending Tracker. Many of us are also in the mindset of “revenge travel,” booking big bucket-list trips to make up for lost time.

Travel industry observers point out other trends that could fuel the sector’s long-term growth:

  • Baby boomer travel boom: As baby boomers—the generation born between 1946 and 1965—reach retirement age, they have more time and money to travel. Boomers are expected to travel extensively in the coming years.
  • Demand for new experiences: Many Canadians, especially Millennials and Gen Z, are picking “experiences” over “things,” splurging on flights and hotels while spending less on goods, groceries, restaurants and new cars.
  • The rise of travel tech: Technology is making travel planning more convenient. From booking flights and hotels to finding attractions, travellers can plan their entire trip on their smartphones. That’s helping to fuel the demand for personalized travel and customized itineraries.
  • Growing LGBTQ2S+ market: The lucrative LGBTQ2S+ travel market has grown rapidly in recent years. Pre-pandemic, in 2018, LGBTQ2S+ travellers spent an estimated $218 billion, and they’ve become a key demographic in the industry.
  • Exploring the great outdoors: Months of indoor confinement and lockdowns have given rise to strong demand for outdoor activities and nature-based tourism, creating a new source of revenue generation for travel companies.
  • Destination weddings are back: Micro weddings are out and destination weddings are in, with market value expected to reach $54 billion by 2027.
  • Work from anywhere: Flexible work arrangements have allowed more Canadians to relocate for a sun-soaked “workcation” or an extended stay abroad—and travel companies are catering to this new crop of digital nomads.

How to invest in travel companies

With the worst of the pandemic in the rear-view mirror, the industry is expected to rebound, offering investors opportunities to invest in quality names at “discounted” prices.

A travel agent smiles as he shows a map to a young man and woman
Image by tonodiaz on Freepik

Investors could pick individual stocks of leading industry players or buy into mutual funds that package names from across travel, tourism and peripheral industries. However, a more cost-effective, lower-risk option could be to invest in travel-themed exchange-traded funds (ETFs), composed of a basket of leisure and business travel companies from a wide spectrum of industries.

One such ETF is the Harvest Travel & Leisure Index ETF (TRVL). This fund holds a diversified portfolio of large-cap companies that own or operate travel-related businesses, including airlines, cruise lines, hotels and booking platforms. TRVL offers exposure to a range of growth opportunities within the sector.

“We’ve seen the positive tailwinds in travel and leisure since before the pandemic, but we noticed that many Canadians who wanted travel exposure just bought a few airline stocks and called it a day,” says Paul MacDonald, chief investment officer and portfolio manager at Harvest ETFs. “TRVL was the very first ETF to offer a diverse array of travel companies to Canadian investors in a single ETF. It invests in airlines, cruise lines, hotels and resorts, casinos and the online booking companies like Airbnb that are opening travel up to so many people. These companies are all categorized in different sectors, but they share the same tailwind: People are travelling more.”

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