This summer was no picnic for US travel and leisure exchange-traded funds.
(Bloomberg) — This summer was no picnic for US travel and leisure exchange-traded funds.
Chaos at the airports, raging inflation, the war in Ukraine and a lingering pandemic all contributed to many Americans’ decisions to stay closer to home for vacations after more than two years of Covid-related travel restrictions. So ETFs built to profit from fun and adventure fell flat.
“It took tech years to recover post-tech bubble, and it took financials years to recover post-financial crisis. So that idea can be transferred to the travel ETFs, post-Covid crisis,” said Todd Sohn, a technical analyst at Strategas Securities. “The handful of travel-related launches recently were interesting — issuers trying to get ahead of a thematic rebound — but that hasn’t played out.”
Here’s how the rough summer played out in funds:
Airlines Grounded
Airline stocks were poised for a bounce-back this summer after lockdowns eased and travelers looked to get away, but the surge in demand was overshadowed by soaring fuel costs, flight disruptions and recession worries.
As a result, investors are bailing on the $2.4 billion US Global Jets exchange-traded fund (ticker JETS), which tracks stocks in the industry. The ETF has posted outflows for four straight months, its longest streak since 2019, according to data compiled by Bloomberg. In the latest months-long skid, over $340 million has been pulled from the fund.
Jumping Ship
It’s not just the airlines that are feeling pressure, Norwegian Cruise Line Holdings Ltd. projects a loss of revenue in the current quarter as economic and geopolitical uncertainties suppress demand.
That’s added up to back-to-back monthly outflows for the first time ever for the 15-month-old Defiance Hotel Airline and Cruise ETF (CRUZ). The $36 million fund saw combined losses of $3.15 million over the past two months.
Avoiding the Crowds
Theme parks and live events have also seen their share of summer turmoil.
August was the worst month of outflows in 14 months for Invesco Ltd.’s $865 million Dynamic Leisure and Entertainment ETF (PEJ), which tracks the performances of US-based leisure, lodging and entertainment stocks like Walt Disney Co. and Live Nation Entertainment Inc. Investors yanked $178 million from the fund in August, extending its streak of outflows to three straight months, according to Bloomberg-compiled data.
Travel Tech Tumbles
Online travel companies, Booking Holdings Inc. and Airbnb Inc., both indicated in their latest earnings results that the pace of bookings growth was slowing.
The $183.1 million ETFMG Travel Tech ETF (AWAY), which tracks an index that measures the performance of companies that use technology to facilitate travel reservations, ride sharing and hailing, also lost money this summer. The fund hasn’t logged a month of inflows since April, losing $48.8 million through August, Bloomberg data show.
Bets Are Off
Rising prices and outbreaks in China haven’t helped the gambling sector either. The VanEck Gaming ETF (BJK) which includes casino operators like MGM Resorts International and Caesars Entertainment Inc., has failed to collect a monthly inflow since February. The $64 million fund has been drained of over $6 million year-to-date.
Overall, the broader market is pricing in a lot of uncertainty as traders recalibrate rate-hike expectations after Federal Reserve officials reiterated the central bank’s commitment to fighting inflation. With worries that an aggressive Fed may eventually cause a recession and limit growth, the future for travel names isn’t looking too bright either.
“As we look at the horizon, I think you may see weakness in those stocks as that first vacation has finally been achieved,” Jeff Schulze, an investment strategist at ClearBridge Investments, said in an interview. “People are being a little bit reluctant to spend because of how expensive things have gotten.”
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