Yahoo Finance Memorial Day Travel May See 11-Year High: ETFs in Focus
Though the recent gains in oil prices stoked concerns about the profitability of the transportation sector, the sector may score well in the ongoing second quarter. This is because oil price has not yet reached the level that can hurt transportation stocks meaningfully. Also, the sector will enjoy the benefit of Memorial Day travel (read: Best Oil Rally in 7 Years; 3 Energy ETF Winners).
As we know, people spend their summer holidays vacationing by road or air, transportation stocks and ETFs become the largest beneficiaries of this trend. This is especially true given that this year Memorial Day travel is projected to be the highest since 2005.
Travel Modes in Detail
As per the AAA survey, 55% of Americans will hit the road thanks to the cheapest Memorial Day gas prices in 11 years. The source indicated that the national average price for a gallon of gasoline is almost 16.6% lower year over year.
As far as air travel is concerned, the Friday prior to the extended Memorial Day weekend is deemed to be the ‘fourth busiest day of the year for air travel’, as per CNN Money. Now 26% lower average airfare for the top 40 domestic flight routes (as per AAA’s Leisure Travel Index), must have heated up air travel this year, setting the mood for impressive airline earnings for Q2.
In any case, the number of flyers has been rising in recent times. A record 222 million passengers passed airport security in June, July and August in 2015, up 4.4% year over year. This year, the figure is expected to log another 4.1% growth to 231 million. Overall, roads are expected to surpass air travel.
What is Driving Surge in Travel?
Along with reasonable fuel prices, improved wages and a healing job market led people to splurge on discretionary activities like traveling. After all a lull in Q1, the U.S. economy is taking root as evident by the recent pool of economic data. So people have greater confidence in economic well-being. This should put cyclical sectors like automotive and consumer discretionary in play.
Below we highlight a few ETFs that stand to gain on Memorial Day travel.
Transportation ETFs
These ETFs offer exposure to railroad, air freight & logistics, trucking and airlines. Choices are (read: Burst of Earnings Surprises Fails to Drive Transport ETFs):
iShares Dow Jones Transportation Average Fund (IYT)
SPDR S&P Transportation ETF (XTN)
Airline ETF
U.S. Global Jets ETF (JETS)
This fund provides exposure to the global airline industry, including airline operators and manufacturers from all over the world (read: 3 ETFs & Stocks to Fly High on Busy Summer Travel).
Leisure and Entertainment ETF
PowerShares Dynamic Leisure and Entertainment Portfolio (PEJ)
Needless to say, a surge in travel gives exposure to a broader array of leisure and entertainment stocks that include restaurants, cruise companies, airlines and leisure travel companies. The 30-stock fund’s top three holdings are McDonald's, Priceline Group and Carnival Corp.
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ISHARS-TRAN AVG (IYT): ETF Research Reports
SPDR-SP TRANSPT (XTN): ETF Research Reports
US GLOBAL JETS (JETS): ETF Research Reports
PWRSH-DYN LE&EN (PEJ): ETF Research Reports
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