Investing in Travel ETFs

With the world figuring out how to live with COVID-19, the travel industry is in growth mode again. U.S. travel for leisure has reached new all-time highs, but business travel is still down from pre-pandemic levels. The same goes for international travel activity. Vacations still have a long way to fully recover, and new digital tools for booking accommodations are on the rise. Over the course of the next decade, some estimates point to global travel spending increasing at an average of 5% to 6% annually -- double the expected average annual growth of the global economy.

Investing in travel ETFs might make a lot of sense right now. If you think the travel industry will continue to rebound and that the global consumer will travel more over the long term, buying a travel ETF could provide healthy investment returns.

Investing in top travel ETFs in 2024

The global travel industry is a large space that spans multiple sectors of the economy. On one end are industrial companies such as airlines, vehicle makers (including RVs or bikes, for example), and energy companies that make moving people possible in the first place. On the other end are destinations such as theme park and cruise line operators, restaurants, and accommodations such as hotels and rental properties. Connecting the two are travel agencies, digital booking services, and other tools that help facilitate travel.

Picking the right stocks in such a massive space can be tricky. But buying a travel ETF (exchange-traded fund) yields instant diversification by way of a large basket of travel industry stocks. Here are six worth a look for 2024:

1. U.S. Global Jets ETF

The U.S. Global Jets ETF is by far the largest fund on our list, with client funds under management of more than $2.5 billion as of this writing. It’s also the only ETF focused on the airline industry, an absolutely essential business for the travel space. The U.S. Global Jets ETF was launched in 2015. The annual fee is 0.6%, which works out to $6 per year deducted from the ETF’s performance per $1,000 invested.

The majority of the U.S. Global Jets ETF’s portfolio is dedicated to U.S. airline operators. One-third of assets are invested in Southwest Airlines (LUV 0.97%), Delta Air Lines (DAL -0.06%), and American Airlines (NYSE:AAL). There are also stocks of international carriers in the mix, as well as a few online travel booking stocks. But by and large, the ETF will perform on the same plane as U.S. airline stocks. This fund is for investors who think air travel volumes will gradually increase over time.

2. PowerShares Dynamic Leisure and Entertainment ETF

The PowerShares Dynamic Leisure and Entertainment ETF is from large investment company Invesco (IVZ 0.2%). The ETF has been around since 2005 and has amassed more than $900 million in client funds. It charges a 0.55% annual fee.

The ETF is a more well-diversified travel industry offering. Although it is limited to 30 stocks in the leisure and entertainment industry, companies in the portfolio include businesses such as event promoter and venue manager Live Nation Entertainment (LYV -2.37%), hotelier Marriott International (MAR -0.91%), and online travel giant Booking Holdings (BKNG -0.4%). The PowerShares Dynamic Leisure and Entertainment ETF has underperformed the S&P 500 Index since the fund was started, largely due to the start of the pandemic in 2020.

3. ETFMG Travel Tech ETF

As its name implies, the ETFMG Travel Tech ETF is the most cutting-edge fund on our list. It has $188 million in funds under management and charges 0.75% per year. This is also a newer ETF. Its inception was at the start of 2020, just before the pandemic began.

Since launching in February 2020, the ETFMG Travel Tech ETF has drastically underperformed the S&P 500. However, a rally could eventually be in order, especially since a little more than half of the fund is invested in online and highly profitable travel software stocks such as Airbnb (ABNB 1.09%) and Booking Holdings. There are also ride-hailing businesses such as Uber (UBER -0.89%) in the mix, as well as smaller travel agencies and planning companies.

4. Defiance Hotel, Airline, and Cruise ETF

The next ETF is also a fresh offering, having launched over the summer of 2021. The Defiance Hotel, Airline, and Cruise ETF was built to capture investor interest in a potential rebound in the global travel industry, although the portfolio hasn’t met those expectations. The fund manages more than $37 million and charges 0.45% a year.

The Defiance Hotel, Airline, and Cruise ETF is comprised of 56 stocks. The name indicates the portfolio’s composition. Top holdings include Marriott International, Delta Airlines, and major cruise line Carnival (CCL 0.43%). Although it has lost to the market overall in its short existence, the ETF could be a top pick for investors who want focused exposure to lodging accommodations, air travel, and cruises.

5. ALPS Global Travel Beneficiaries ETF

Another recent ETF offering, the ALPS Global Travel Beneficiaries ETF has only accumulated about $12 million in funds since launching in the autumn of 2021. It charges 0.65% in annual fees.

Although still small at this stage, the ALPS Global Travel Beneficiaries ETF aims to be a well-diversified investment option. Top stocks include airplane manufacturer Boeing (BA 0.01%), entertainment conglomerate Walt Disney (DIS -0.45%), and payments and travel company American Express (AXP -0.08%), as well as many other businesses already mentioned above. Its diversified approach to travel and adjacent industries could serve the ETF well in the years ahead.

6. AdvisorShares Hotel ETF

This last ETF, by far the smallest with a little more than $6 million in client funds under management, is another niche travel offering. The AdvisorShares Hotel ETF focuses on hotels, accommodations, casinos (gaming), and related travel sub-industries. As an actively managed fund, it has a higher expense ratio of 0.99% per year.

The fund managers focus on profitable businesses that have a dominant position among their competitors. As of this writing, the top three stocks in the portfolio are oil and gas worker housing specialist Target Hospitality (TH 2.26%), resort and vacation property manager Bluegreen Vacations Holding (NYSE:BVH), and Marriott. With its focus on profitable companies that haven’t been hit as hard by the pandemic as other travel companies, the ETF has held up relatively well so far compared to some of its peers on this list. However, since most of its holdings are real estate stocks, it may not have the same growth potential as other travel ETFs.

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Travel investments are a long-term theme

Although the travel industry has been beaten down over the past few years, this is an area of the global economy that should grow at a steady pace in the next decade. However, as is the case with other discretionary consumer spending, travel stocks can also be highly sensitive to overall economic health. Expect plenty of bumps in the road. Nevertheless, for investors who believe travel will keep expanding for years to come, investing in a travel ETF could be a solid option for a well-diversified portfolio that includes other investment themes.