Three Reopening ETFs to Consider

Travel stocks are flying high as three excellent Covid-19 vaccines are being rolled out. Recently, the FDA approved Johnson & Johnson’s (JNJ) single-dose vaccine for use in the US. And Merck (MRK) will help manufacture JNJ’s vaccine, which will significantly boost the vaccination campaign and hopefully bring a return to normalcy soon.

Recently, President Biden said that there will be enough vaccines available for all US adults by the end of May, two months earlier than previously expected. The pent-up demand could result in a travel boom later this year.

The airline industry is also expected to receive $14 billion in aid as part of Biden’s $1.9 trillion stimulus bill. Investors should however remember that business travel may not return to pre-pandemic levels as many would continue remote working and video conferencing in the future as well.

Exchange-traded funds with exposure to travel, entertainment, and other industries likely to benefit from the end of COVID-19. In this list, we’ll highlight three choices for ETFs that may do well as the vaccine rollout gains momentum.  

The ETFMG Travel Tech ETF (AWAY)

AWAY is the first ETF to provide access to technology-focused global travel and tourism industry. The investment seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the Prime Travel Technology Index NTR. The fund invests at least 80% of its total assets, exclusive of collateral held from securities lending, in the component securities of the index and in ADRs and GDRs based on the component securities in the index. The index tracks the performance of globally exchange-listed equity securities of companies across the globe that are engaged in “Travel Technology Business” which is defined as providing technology, via the internet and internet-connected devices.

The fund is a passively-managed portfolio of companies that, via the internet and internet-connected devices, facilitates travel bookings and reservations, ride sharing and hailing, travel price comparison, and travel advice. To be identified as index constituents, companies must derive majority of their revenue from travel technology business activities, in which those activities are assessed by the index provider from their regulatory filings and other financial reports. The fund uses proprietary weighting methodology that weights securities based on market capitalization and average daily value traded. The larger and more frequently traded companies will receive a higher score compared to smaller and less traded companies. The three companies receiving the highest score will each receive a weight of 8%, while the next three companies receive 6% weight each and all excess weight is distributed across the remaining securities. The Index is reconstituted and rebalanced during its semi-annual review.

  • Net Assets                              93.83M
  • Price/Earnings Ratio               -10.41
  • Price/Book  Ratio                    3.55
  • YTD total return                      27.08%
  • Expense Ratio (net)                0.75%
  • Yield                                        N/A
  • Top Holdings                           Facedrive (FDVRF), TripAdvisor (TRIP), Airbnb (ABNB)

The Invesco Dynamic Leisure & Entertainment ETF (PEJ)

The investment seeks to track the investment results (before fees and expenses) of the Dynamic Leisure & Entertainment IntellidexSM Index. The fund generally will invest at least 90% of its total assets in the securities that comprise the underlying intellidex. The underlying intellidex was composed of common stocks of U.S. leisure and entertainment companies. These companies are engaged principally in the design, production or distribution of goods or services in the leisure and entertainment industries. The fund is non-diversified.

PEJ tries to pick winning stocks rather than deliver a market-cap-weighted basket that reflects the industry. Its stock selection process is a bit opaque beyond the broad descriptions of its screens: fundamental, timeliness, valuation and risk. PEJ holds about 30 stocks, many more than the 10 or so in our narrow benchmark. Some might see value in this diversification, which mitigates single-stock risk, while others might see a lack of focus. Either way, many of these ‘extra’ stocks are restaurant chains, which our benchmark excludes from the leisure & entertainment industry. By firm size, the fund tilts significantly away from large-caps. The resulting portfolio has lagged our benchmark over the past 12 months. PEJ isn’t cheap to hold but can be fairly traded with care.

  • Net Assets                              856.3M
  • Price/Earnings Ratio               103.93
  • Price/Book  Ratio                    3.75
  • YTD total return                      27.08%
  • Expense Ratio (net)                0.63%
  • Yield                                        0.89%
  • Top Holdings                           ViacomCBS (VIAC), Disney (DIS), Fox Corp. A (FOXA)

Invesco S&P 500 Equal Weight Consumer Discretionary ETF (RCD)

The investment seeks to track the investment results (before fees and expenses) of the S&P 500 Equal Weight Consumer Discretionary Index (the “underlying index”). The fund generally will invest at least 90% of its total assets in the securities that comprise the underlying index. The underlying index is composed of all of the components of the S&P 500 Consumer Discretionary Index, an index that contains the common stocks of all companies included in the S&P 500 Index that are classified as members of the consumer discretionary sector, as defined according to the Global Industry Classification Standard (“GICS”). The fund is non-diversified.

RCD provides a unique but not radical alternative to cap-weighted consumer discretionary exposure. RCD holds the same stocks as cap-weighted XLY, but weights each stock equally. Equal weighting avoids concentration in large firms, while significantly increasing midcap exposure compared to the sector. RCD’s tilt toward smaller firms is limited by its universe—the S&P 500—which excludes small-caps. RCD isn’t much of a trader’s fund, with middling daily volume and sizeable spreads, although the story is better for larger investors interested in block trades. RCD charges a high fee for its segment, but it tracks its index very closely and keeps holding costs in line with the pricetag.

  • Net Assets                              367.91M
  • Price/Earnings Ratio               -381.31
  • Price/Book  Ratio                    4.4
  • YTD total return                      10.84%
  • Expense Ratio (net)                0.40%
  • Yield                                        0.81%
  • Top Holdings                           Tesla (TSLA), Carmax (KMX), General Motors(GM)

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