The pandemic has affected each sector differently. Today, we take a closer look at exchange-traded funds (ETFs) in the leisure and hospitality industry, which has been in the headlines since early 2020 due to lockdowns and the “stay-at-home and work-from-home” trends.
Industry classifications may vary slightly or overlap in different countries. But businesses in the sector typically operate in entertainment, e-sports, gaming, lodging, restaurants, sports facilities, travel and tourism.
There are several indices investors usually follow to gauge the health of these firms. For example, the Dow Jones Travel & Leisure index is down about 14% so far this year. Similarly, the Dow Jones U.S. Travel & Tourism, the Dow Jones U.S. Airlines and the Dow Jones U.S. Gambling indices have all decreased 16%, 45% and 10%, respectively. On the other hand, the Dow Jones U.S. Broadcasting & Entertainment index is up about 3%.
Put another way, there is a wide range of beaten-down companies in the sector. Although it may be tempting to take a contrarian view and buy into the shares and ETFs that have declined considerably, we would encourage investors to be selective and do proper due diligence. With that background, here are two funds that investors may want to research further.
1. Invesco Dynamic Leisure and Entertainment ETF
Current Price: $32.32
52-Week Range: 17.60-45.87
Dividend Yield: 0.49%
Expense Ratio: 0.63%
The Invesco Dynamic Leisure and Entertainment ETF (NYSE:PEJ), which has 32 holdings, was launched in 2005. It follows the Leisure & Entertainment Intellidex index.
The top sector allocation (by weighing) is Hotels, Restaurants & Leisure (40.62%), Entertainment (25.04%) and Media (19.89%). Global media group ViacomCBS (NASDAQ:VIAC), pizza restaurant chain Domino’s Pizza (NYSE:DPZ) and news, sports and entertainment company Fox (NASDAQ:FOX) are currently the top three holdings. The fund is rebalanced quarterly.
So far this year, PEJ is down more than 28%. However, since the lows seen in March, the fund is up about 90%. Therefore, some profit-taking is possible, pushing the price toward the $30-level. Short-term technical indicators and charts as well as P/B ratio of 2.3 also urge caution in the weeks ahead.
Long-term investors may consider buying it around $27.5. PEJ could be a play to consider on an economic recovery or potential vaccine development later in the year.
2. Roundhill BITKRAFT Esports & Digital Entertainment ETF
Current Price: $25.30
52-Week Range: 11.91-26.53
Dividend Yield: 0.2%
Expense Ratio: 0.50%
This fund focuses on e-sports and gaming, which have seen a rise in 2020 as engaging leisurely activities. In e-sports, video gamers play competitively, and tournaments and championships take place at regional and international levels. League of Legends World Championship by Riot Games is the biggest e-sports tournament worldwide. In 2019, "36 different cities hosted more than 60 unique events" and the event had more than 100 million viewers.
The Roundhill BITKRAFT Esports & Digital Entertainment ETF (NYSE:NERD) provides exposure globally-listed companies that are actively involved in e-sports and video gaming. These businesses range from video game publishers to streaming network operators, video game tournament and league operators/owners, competitive team owners and hardware companies.
NERD, which has 32 holdings, tracks the Roundhill BITKRAFT Esports index. The top sectoral allocation includes Games (37.2%), Media (31.9%), and Hardware (20.2%). About 30% of the companies are China-based, followed by the U.S. (18.3%). Next in line are South Korea, Sweden, Singapore and Taiwan.
The top 10 holdings comprise over half of NERDS’s net assets, which stand around $44 million. Corsair Gaming (NASDAQ:CRSR), a hardware and accessory company that went public in September, Activision Blizzard (NASDAQ:ATVI), developer and publisher of interactive entertainment content including video games, and Tencent Holdings (OTC:TCEHY), which provides social networking, web portals, e-commerce, mobile games, and payment systems among other services, top the list of current holdings.
Corsair Gaming CEO Andy Paul has recently commented:
"We're already waiting for Wall Street investors to understand gaming and streaming properly. Some of these new industries ... are tough for investors to understand.... Perhaps people saw gamers as sort of a troubled teenager playing games in the basement. It's a real sport.... It's become mainstream."
Metrics show that the e-sports industry has seen significant growth in recent years, both in terms of revenue and viewership. Worldwide market revenue for 2020 is over $1 billion with China leading the list of countries with the highest revenues. E-sports leagues typically have millions in prize money.
Year-to-date, NERD is up about 54%. On Sept. 2, it hit an all-time high of $26.53. Those investors who believe the industry has room to grow may consider buying the dips, especially if the price goes below $25.
Finally, another exchange-traded fund to consider could be the VanEck Vectors Gaming ETF (NYSE:BJK), which provides exposure to companies involved in casinos and casino hotels, sports betting, lottery services and gaming.