Advertisement
Sponsored By
Harvest ETFs
After a tough few years for the travel industry, people are spending big on vacations again. Here’s a look at opportunities for investors.
Travel is making a comeback. The sector was hit hard by the COVID-19 pandemic, with many hospitality, tourism and transportation companies losing money or closing down. Now, as the world emerges from the global health crisis, the travel sector’s future is looking bright, a view supported by improved economic indicators specific to the sector.
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.
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:
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.
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.”
An index ETF, TRVL invests in 30 large-cap travel and leisure companies in North America, including familiar names like Hilton, Marriott International, Airbnb, Carnival, Air Canada and Delta Air Lines, among others.
Harvest recently launched another travel-focused ETF, the Harvest Travel & Leisure Income ETF (TRVI), which also holds the same diversified portfolio of large-cap travel companies, with the addition of monthly income.
As travel makes a strong comeback from the depths of the pandemic, these companies are well positioned to reap the benefit of the sector’s return to profitability.
Like many other Harvest equity income ETFs, TRVI employs a covered call writing strategy. This involves selling call options on the securities within the funds to generate higher income—a feature that may appeal especially to investors who are saving for retirement and concerned about ongoing economic uncertainty and stock market volatility.
A call option is a contract that lets the buyer decide if they want to buy a stock from the seller at a certain price within a certain time period. The buyer pays a fee, called a premium, for this option, and the seller keeps the fee no matter what happens.
Covered call ETFs like TRVI offer the potential for increased cash flow and reduced portfolio volatility. Moreover, writing covered calls can be a tax-smart investment strategy, as the cash flow generated is considered capital gains, which are taxed at lower rates compared to dividend income. (Learn more about call option ETFs.)
“TRVI captures the same portfolio as TRVL but adds an income component that we saw many investors seeking,” says MacDonald. “Because we use an active call option strategy, we can actually monetize any short-term volatility in the travel space while giving investors long-term exposure to the growth prospects we see for travel.”
Investors should note that the income from covered call options sometimes means less market upside opportunity: If the underlying stock rises in value, the option holder will probably exercise their right to buy it, and the ETF will own less of it. For this reason, Harvest ETFs limits option writing to a maximum of 33% of its portfolio holdings.
Before buying a travel ETF or any other investment, it’s important to consider how it will fit into your overall investing strategy. A travel ETF may be a good fit for your portfolio if you’re able to take on a certain level of risk and want exposure to the travel industry rebound.
In addition to the appeal of investing in blue-chip travel and hospitality firms, there are several other benefits to consider, including diversification across a wider range of companies than you would get from buying individual stocks, potentially lower fees than investing in stocks or mutual funds, and higher income yields through covered call writing.
It is a paid article that may feature a partner’s product or service. It was produced by MoneySense’s editorial team with input from the partner.
Share this article Share on Facebook Share on Twitter Share on Linkedin Share on Reddit Share on Email
Which ETFs should you invest in? Which ones best suit your risk tolerance? What about personal ethics? Check out...
If you’re looking for a financial advisor or planner, learning about their credentials can help you choose the right...
Nvidia doubles revenue in one year, Canadian inflation moves in the wrong direction, Target misses badly, Walmart beats earnings...
Here’s how to get your free ticket to attend the MoneyShow virtual expo.
Nvidia beats earnings expectations as investors eye demand for Blackwell AI chips.
Nvidia is Wall Street’s most valuable company. How it got there, by the numbers.
The world’s biggest cryptocurrency topped USD$98,000 on Nov. 21. As it inches ever closer to six figures, investors wonder:...
Practical advice on how to build your retirement savings for employees at mid-career, the self-employed, single parents and more.
Canada’s inflation rate rose to 2% last month, up from 1.6% in September, but a December interest-rate cut is...
Find the best GIC rates in Canada. Plus, everything you need to know about how they work.