STOXX Europe Travel & Leisure ETF Analysis

STOXX Europe Travel and Leisure ETF Analysis including Factsheet

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The travel and leisure industry is among the worst hit by the global pandemic. In spring 2020, the global lockdown did even force some companies in the industry out of business. With most of the restrictions lifted in summer, a rising number of new infections is now feeding fears of another lockdown in autumn and winter. This would impose an existential threat to the travel and leisure industry. Yet, some investors are quite bullish and confident that the industry will eventually recover. Learn how to benefit from an upcoming recovery of the travel & leisure industry while keeping your risks at a minimum.

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The Travel & Leisure industry

With grounded aircrafts, deserted hotels and airports operating on less than 20 % of their total capacities, global travel has come to an abrupt halt. In fact, the travel industry has not seen a comparable decline in global demand since world war II. The pandemic unleashed what economists refer to as a “symmetric-shock” that affects each country around the globe in the same way. Airline revenues are estimated to drop by more than -55 % this year. Job losses in the entire travel sector are expected to exceed 100 million. Global losses in GDP contributed by the industry are estimated to decline by 2.7 trillion USD in 2020.

These numbers are devastating and it is obvious that many companies will not be able to survive the Corona crisis. In fact, many states had to jump in and grant additional lines of credit for the most struggling companies. Despite the aforementioned, many analysts are positive that the industry will have a strong recovery. This forecast is based on the assumption that a vaccine will soon be available and that there will be consolidation within the industry. It is however almost impossible to foresee which company will emerge as a winner and which one will fall back or even file for bankruptcy. Investors that want to invest in the industry should therefore reduce their risks as much as possible. One option is to invest in an index that covers the industry instead of selecting a single stock.

STOXX Europe 600 Travel & Leisure

The STOXX Europe 600 Travel & Leisure index tracks the market performance of companies within the European travel and leisure industry.
Following the pandemic, the index lost more than -50 % of its value in less than one month. It was a decline from 266 EUR to 128 EUR. Today, the index performance is still clearly negative on a year-to-day basis. Constituents include companies, such as Ryanair, Intercontinental, Lufthansa, Carnival and Accor, which are typical representatives of the industry.

However, the index covers related industries such as gambling and catering, too. Especially the gaming and gambling sector proved quite resilient during the current crisis. Those constituents can serve as a cushion when airlines and hotels face another downturn in fall due to new travel restrictions. One of the most prominent ETFs, which track the index is the iShares STOXX Europe 600 Leisure and Travel ETF from BlackRock.

iShares STOXX Europe 600 Leisure and Travel ETF performance

For a detailed overview and analysis of the ETF, see our above factsheet.

Conclusion and outlook

The travel and leisure industry must now shield itself but at the same time innovate rapidly (with the speed of idea) to be ready when demand kicks in. Until that happens, each and every company in the industry has to maximise its opportunities for value. Investors who seek to invest should reduce their idiosyncratic risk by investing in an index instead of a single company. It is very difficult to predict which company will survive and which will not. In any event, investors should prepare for a bumpy ride. Autumn 2020 may come with additional travel restrictions as well as additional political and social uncertainties. Double digit short term losses are definitely in the realm of possible. In the long run we are however quite optimistic that the industry will recover to previous heights.