ETFs to invest in other people’s travel and Leisure

Is it a good idea to start investing in Travel and Leisure ETFs? After more than a year of travel restrictions and holiday cancellations, the world seems to start operating again. Restrictions to enter some countries and recommendations of not travelling to certain places are still in place, but the experts are talking about a phenomena called revenge spending, that will make people go crazy and spent all the money they have been saving during this time on travelling and leisure.

We have selected two ETFs that follow the index STOXX® Europe 600 Travel & Leisure. The Index is a financial index comprising travel companies selected from the STOXX® Europe 600 Index. Certain filters are applied including a liquidity filter. Constituent weightings are cappet at 20, 15 or 10% depending on the number of constituents. The Index exposure per sector and geographically is:

Source: Invesco.

And as per 7th of July 2021 their main positions are allocated in European entertainment and travel companies, such as Flutter entertainment, Evolution gaming group, Intercontinental hotels, Entein and Ryanair.

We had the pleasure of chatting to Invesco and Lyxor about their ETFs and the expectations from the Travel and Leisure sector.

Invesco STOXX Europe 600 Optimised Travel & Leisure UCITS ETF

Laure Peyranne, head of ETF for Iberia, Latin America and US Offshore

In this context, given the lifting of mobility restrictions and the return of confidence, a good part of the companies related to tourism are already showing a strong upward trend. Taking into account that the major equity indices are already well above pre-Covid levels, and in an environment of strong economic growth, it makes sense to look at those sectors that will benefit from the full opening of the economy but are still lagging behind.   

For pure sector exposure, Invesco has a broad offering of sector ETFs in both Europe and the United States. In Europe alone it has up to 18 ETFs dedicated to individual sectors. Within this offering is the Invesco STOXX Europe 600 Optimised Travel & Leisure UCITS ETF, an exchange-traded fund focused on the travel, tourism and leisure sector. This ETF aims to replicate the STOXX Europe 600 Optimised Travel & Leisure index in a transparent, simple way and at a very competitive cost: only 0.3% per annum. These "Optimised" indexes are designed to offer better liquidity than the general index, as it incorporates the liquidity factor when constructing the index and the weightings of its constituents.

As of 28th June, 2021, the ETF has appreciated more than 25% year-to-date and more than 60% over the last twelve months, thanks mainly to good earnings expectations following the gradual reopening of economic activity and tourism. 

Leading companies 

The STOXX Europe 600 Optimised Travel & Leisure Index is composed of leading travel companies included in the STOXX Europe 600 Index. Certain filters are applied for the selection of these companies, with a particular focus on liquidity. 

The weightings of each of the index constituents are limited to 20%, 15% or 10%, depending on the number of constituents. Along these lines, the Fund's sector exposure is concentrated in consumer discretionary, accounting for almost 90% of the total. 

The fund is geographically diverse, with a large part of the European continent's tourism companies. Specifically, the fund holds shares of companies from 16 European countries (Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom and United Kingdom), providing greater diversification for its investors.

Lyxor STOXX Europe 600 Travel & Leisure UCITS ETF (TRVL IM)

Head of ETFs Iberia & Latin America at Lyxor Asset Management

The Lyxor STOXX Europe 600 Travel & Leisure UCITS ETF (TRVL IM) replicates the STOXX Europe 600 Travel & Leisure NR EUR Index, a sector benchmark composed of the 16 stocks that best represent the european travel & leisure sector, measured by the level of revenues. The index is quarterly revised and is diversified also at the country level, with UK weighing 36%, Ireland 26% and Continental Europe 37,5%. The sector represents, in market value terms, 14% of the broader European benchmark STOXX Europe 600, with a total size of €181bn.  

Source: STOXX data from 31.12.200 to 31.05.2021.

The index includes companies such as Intercontinental Hotels, Ryanair, Sodexo, IAG, Accor, among others, and its exposed to several sub-sectors, such as Casinos & Gaming, with a 52% weight, Hotels (25%), Airlines (18%) and Restaurants (5,5%).