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By Michael KovacsPresident & CEO |
The experience of travel was once reserved for the select few who could afford it, but it is now a global phenomenon.
Travel and related industries contribute 10 per cent of the world’s GDP and support one in 10 global jobs, according World Travel & Tourism Council. [1] The industry has taken the full force of the pandemic in the past year, but investors have started looking beyond that to a normalizing economy later this year. The larger trends of rising incomes in the developing world and increasing leisure in the developed are two trends that point to long term growth.
Harvest Portfolios Group Inc., has launched Canada’s first travel industry ETF to capture that potential. In an interview, Harvest CEO Michael Kovacs explains why the company launched the Harvest Travel & Leisure Index ETF (TSX: TRVL), the thinking behind the ETF and why it aligns with the Harvest strategy of conservative growth and income.
Why are you launching the Harvest Travel & Leisure Index ETF?
We’ve seen an opportunity for a while and were thinking of launching this ETF in 2019. We look for long term trends and saw how demographic and economic trends were a big tail wind for the travel and leisure industry. In all areas, from air travel and cruise lines to hotels.
You could see millennials travelling more. Asian travel rising. The pandemic crushed the travel industry but we are seeing signs of a resurgence. Even so, many of the stocks are still down 50 to 80 per cent. We see this as an opportunity. It’s a play on consumer behavior as the post-COVID economy gets going again. We also see this as a resumption of a long term demographic trend.
Does the ETF offer your usual dividend and covered call strategies?
No, it is a simple equity growth story. At the end of the year, there might be a distribution but it’s not about income. So no covered calls.
Tell us about the ETF
Sure. It holds 30 companies listed on the North American exchanges. Most are global. It includes such names as Carnival Cruise Lines, airlines including Air Canada and hotel chains and travel intermediaries like Expedia that own subsidiaries like Travelocity and VRBO.com (Vacation Rental by Owner). There are also resorts and casinos like MGM.
In round numbers, hotels, resorts and lodgings are about 30% of the ETF, casinos and resorts 25%, airlines 20%, booking sites 15% and cruise lines about 10%.
The management fee is 0.40%.
How do you choose the companies?
It follows the Solactive Travel & Leisure Index which tracks the 30 largest travel related companies by market capitalization. The index is adjusted twice a year with no one company at more than 10%.
How do you see things recovering?
Air Canada is one of our most our most widely recognized airlines. They have shut down a lot of flights, laid off staff and basically parked their planes because of the pandemic. But we’re starting to see a comeback in air travel and see that as a turnaround situation for Air Canada.
I mentioned Expedia which is an online travel intermediary. As people start to book vacations again, these intermediaries will see a pickup in volumes as well. Another area is cruise life. Carnival Cruise Lines lost 85% of its value at the worst point last year. This is an area that appeals to the older demographic and it will eventually come back. The ETF will hold Carnival, Norwegian Cruise Lines and Royal Caribbean as examples, which account for over 70% of the Global Cruise market.
What makes this ETF different?
Most travel industry ETFs are focused on just one segment – airlines or hotels or casinos. This is a diversified global travel ETF.
How do you see it fitting into a portfolio?
It is suitable for the growth segment of a portfolio, but not for someone looking for income. What’s appealing is the long trends. It also benefits as the economy recovers. It’s very simple to understand.
How would you sum up the opportunity?
We recognized that before the pandemic, global travel growth had long-term drivers. They are still in place. We also believe in the shorter term that these companies stand to benefit from a resumption in travel and the pent-up demand as the pandemic eases.
The Harvest Travel & Leisure Index ETF started trading on January 14th, 2020, on TSX.
For more on Harvest products click here.
[1] World Travel & Tourism Council (June 2019). Travel & Tourism Benchmarking Reports 2019
