TRVL Webinar – January 19th, 2021 Summary
Paul MacDonald, CFA
Chief Investment Officer
Harvest Travel ETF taps post-pandemic spending rebound
Harvest Portfolios Group Inc. has launched Canada’s first fully diversified global travel ETF to capture the twin trends of rising incomes in the developing world and increasing leisure in the developed.
Even though the travel industry has felt the full force of the pandemic, these underlying trends point to long term growth beyond the impact of COVID-19, says Paul MacDonald, Chief Investment Officer at Harvest. He told advisors during a recent webinar that vaccination programs will normalize the economy and consumers will begin travelling again.
“It is going to happen. It’s a question of when, not if,” he said.
The Harvest Travel & Leisure Index ETF (TRVL:TSX, TRVL.U:TSX) is well positioned to capture that potential, he said, because it is diversified across the five core sub sectors. This plays to Harvest’s strength of identifying evolving trends and creating ways for investors to take advantage of them.
The ETF is passively managed and follows the Solactive Travel & Leisure Index which tracks the 30 largest global travel-related companies by market capitalization. The index is adjusted twice a year, with no one company at more than 10 per cent. The ETF’s management fee is 0.40%.
“Because we have 30 companies, rather than picking a needle in a haystack, we offer investors a diversified solution,” he said.
Mr. MacDonald said pre-pandemic conditions were favourable for the travel industry. Along with rising global affluence and increasing leisure travel by an older demographic, millennials have joined in. They are looking for experience-related travel experiences and are comfortable using online booking sites which make travel more accessible and affordable.
The pandemic year was a hard one for the sector, with the S&P Travel and Leisure index down 21.4% in 2020, compared with a rise of 13.1% for the S&P 500. This is setting the table for the upside, Mr. MacDonald said.
Cruise lines have been particularly affected and may be slower to recover, but the ETF is well positioned. It holds three companies that represent about 75% of the global cruise capacity.
“This is an area we think pops, once we see a resumption in cruise capacity,” he said.
Mr. MacDonald said McKinsey & Co. research sees hotel occupancy rebounding by mid-2021 and back to near full capacity by 2022 in one of its scenarios. The United Nations likewise sees international tourism reviving later this year.
The pandemic has tipped the global economy into recession, but in the U.S. and Canada savings rates have increased in part because there are fewer places to spend money. One area where it will be spent is on travel, he said.
The companies in the Harvest Travel & Leisure Index ETF are listed on North American exchanges. Hotels, resorts and lodgings, make up the largest component at 29% of the Index as at December 31, 2020, followed by casinos and gaming (25%), airlines (22%), booking sites (15%) and cruise lines (9%).
Mr. MacDonald said the airline component holds only North American carriers, including Southwest Airlines, Delta Airlines and Air Canada. They have higher margins than European carriers and more government support than other jurisdictions.
The casino and gaming companies include Las Vegas Sands and MGM Resorts which have 50% of global casino revenue. They are currently operating at 33% capacity.
The three cruise lines Royal Caribbean Cruises, Carnival Corp. and Norwegian Cruise Lines represent 72% of global capacity.
“All three of them are well capitalized and can weather the storm.”
The hotel component is led by Marriott International and Hilton Worldwide.
Booking sites have facilitated a broad adoption of travel, Mr. MacDonald said. One of the largest is Booking Holdings Inc., which owns Kayak, Booking.com and Priceline.com while Expedia is also held in the ETF. . These companies have performed much better than other travel sectors, because in addition to advertising revenue, they earn commissions from local tours and attractions. Locals have been able to use these attractions during the lockdown.
“If you’ve flown anywhere, stayed at a hotel, been to a casino, on a cruise or booked a holiday online, its most likely you’ve used one or all of the companies in the ETF,” Mr. MacDonald said.
For more on Harvest ETF products click here.
Harvest ETFs (managed by Harvest Portfolios Group Inc.)