Transportation, Discretionary ETFs for Summer Travel

ETF Trends

After years of belt tightening, Americans are now opening up their wallets. As spending rises, travel and discretionary-related exchange traded funds could experience continued strength.

Over the July 4 weekend, about 34.8 million people are expected to travel 50 miles or more, up from 34.1 million last year and the most since 2007, Bloomberg reports.

Accordingly, Mark Zandi, chief economist at Moody’s Analytics Inc., believes that consumer confidence and spending are on the mend and will support sales for for hotels and other attractions.

“Stronger business travel and tourism is a very good barometer of the health of the broader economy,” Zandi said in the article. “Spending on travel is more discretionary and expensive. The revival in travel is thus a good sign that the economic recovery is gaining traction.”

The improved allocate has allowed consumers to take a longer time off and to spend more money. For instace, about 51% of U.S. residents plan tos pend at least $2,000 or more on summer vacation this year, compared to 44% last year. Meanwhile, 88% plan a vacation this year, or up 11 percentage points from last year.

“People and businesses are feeling more confident, and that is reflected in travel spending,” Nikhil Bhalla, lodging analyst at FBR & Co., an investment banker, said in the article. “People are taking more and longer vacations.”

As more people travel, the airline industry could see a steady increase in occupancy. While there are no airline-specific ETFs on the market, the iShares Transportation Average ETF (IYT) and the SPDR S&P Transportation ETF (XTN) provide airline industry exposure without the commitment or risks of a single stock. IYT has a a 15.9% weight toward airline companies while XTN includes a 24.2% allocation to airliners.

Additionally, investors can gain targeted exposure to the leisure and entertainment industry through the PowerShares Dynamic Leisure and Entertainment Portfolio (PEJ) , which selects companies in the entertainment industry based on price momentum, earnings momentum, quality, management action, and value.

The rise in tourism also helps bolster the tourism and services industry. The travel industry added 749,000 jobs in May.

“There is broad optimism,” Marriott International Inc. Chief Executive Officer Arne Sorenson said in the article. “The economic recovery is broad and steady and ought to continue.”

The iShares US Consumer Services ETF (IYC) follows companies that distribute food, drugs, general retail items and media. IYC includes a 22.9% allocation to travel & leisure stocks. [A Discretionary ETF Worth Shopping For]

For more information on market sectors, visit our sector ETFs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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