The Best Travel and Leisure ETFs

Published on

Travel stocks were some of the best-performing names last year, with the sector up by about 27% according to Skift Research’s Skift Travel 200 Index. It is a broad category that includes hotels, airlines, cruises and tours, travel tech, ground transportation, and other related categories, not to mention companies in the leisure and entertainment industries.

The outlook for travel and leisure stocks is generally pretty good this year too, as demand remains high. However, finding the right stocks in the right segment of this broad universe is not always easy. Nonetheless, a good way to tap into this area of the market is through exchange-traded funds, or ETFs, as there are several that focus on these industries. Here are two of the best.

Defiance Airline, Hotel and Cruise ETF

As the name suggests, the Defiance Airline Hotel and Cruise ETF (NYSEARCA:CRUZ) invests in airline, hotel and cruise-ship stocks via the BlueStar Global Hotels, Airlines, and Cruises Index. The fund is a relative newcomer, having only been around since 2021, but it already has amassed a decent $39 million in net assets.

The index and thus the fund include stocks of companies from around the world that derive at least 50% of their revenue from passenger airlines, hotels and resorts, or the cruise industry. None of those three industries can have more than a 50% weight or less than a 15% weight, and no individual stock can represent more than 8% of the portfolio, ensuring adequate diversification.

Currently, the top three holdings in the portfolio are Marriott International (NASDAQ:MAR), Hilton Hotels (NYSE:HLT) and Royal Caribbean (NYSE:RCL). The portfolio contains 55 global stocks.

Although the ETF does not have a long track record, it was up 35% in 2023; since its inception in June 2021, it is down 10%, as of Dec. 31. However, that covers two of the most difficult years for the travel industry in recent history, so the ETF should have some momentum as travel demand ramps back up to pre-pandemic levels.

Invesco Leisure and Entertainment ETF

Having debuted in 2005, the Invesco Leisure and Entertainment ETF (NYSEARCA:PEJ) has the distinction of being one of the first ETFs to track stocks in the travel, entertainment and leisure industries. Formerly known as the PowerShares Dynamic Leisure and Entertainment ETF and the Invesco Dynamic Leisure & Entertainment ETF, this fund tracks the Dynamic Leisure & Entertainment Intellidex Index, which is made up of stocks from 30 U.S. leisure and entertainment companies.

The companies in the index are principally engaged in the design, production, or distribution of goods or services in the leisure and entertainment industries. They may include hotels, restaurants and bars, cruise lines, casinos, and other recreation and amusement businesses. They may also encompass companies engaged in the production of movies, music, radio and television, and theaters.

The stock selection and weightings are based on specific investment criteria, including price momentum, earnings momentum, quality, management action and value. Currently, the top three holdings are Royal Caribbean Cruises, Warner Music Group (NASDAQ:WMG), and Marriott.

The ETF returned 16.4% in 2023, and it performed better than some of its peers through the pandemic, with a five-year annualized return of 2.2% through Dec. 31. Since its inception in June 2005, the fund has posted an average annualized return of 7.3%. That is roughly on par with the S&P 500 over that same period.

The past several years have been difficult for the travel industry, but the resurgence that began in 2023 should continue through 2024, which makes these travel and leisure ETFs worth considering.

Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.