Time to Get AWAY? Take a CRUZ?

Travel ETFs’ market-beating returns may not last if rate hikes hurt leisure spending.

With spring break bearing down, and the pandemic as a national emergency coming to an end, travel is again on people’s minds. 

As warmer climates beckon fliers and road warriors, offices are reopening and business travel is also picking up.  

Travel-related stocks are off to a strong start this year, with many outperforming the overall stock market. These include the Defiance Hotel, Airline, and Cruise ETF (CRUZ) and the ETFMG Travel Tech ETF (AWAY), both of which hold portfolios of travel stocks.  

The S&P 500 tracking SPDR S&P 500 ETF Trust (SPY) has gained 3.7% so far this year, easily topped by the travel ETFs. AWAY has gained 9.5% this year, while CRUZ has added almost 17%.  

Comparing CRUZ and AWAY 

The ETF.com Comparison Tool highlights the differences between the two ETFs: 

The above chart shows that while AWAY is three times CRUZ’s size and trades at a higher average daily dollar volume, it charges a higher management fee.  

AWAY’s top holdings include: 

The above chart shows AWAY’s holdings reflect technology-based companies in the travel industry.  

Meanwhile, CRUZ’s top holdings are traditional hotels, airlines, and cruise lines.  

Explaining CRUZ’s Recent Advantage  

CRUZ’s outperformance compared to AWAY could reflect the underperformance of technology stocks in 2022. While SPY fell 18% last year, the tech-heavy Invesco QQQ Trust (QQQ) dropped 33%. Both have recovered some ground, with QQQ adding 10%. 

While AWAY has nearly kept pace with the Nasdaq, CRUZ has done much better than the S&P 500 and tech index because of the boom in travel demand. The most direct impact of the rising travel demand has pushed the airline, hotel and cruise stocks appreciably higher than the high-tech travel sector.  

The ETF.com ETF fund flow tool shows that while net flows for AWAY declined, they were marginally higher for CRUZ since the start of 2023, as investors seem to prefer the traditional travel stocks to the technology-based travel-related companies.  

The Case for Higher Travel Stocks 

Inflation is pushing all costs higher, and travel is no exception. At the same time, people are dusting off shelved travel plans thanks to the combination of rising incomes and savings as well as the end of the global pandemic.  

While markets face uncertainty on many levels, if the trend in travel continues, hotels, airlines and cruise lines will benefit and earnings will reflect the increased demand.  

A Cautionary Note 

Still, thanks to rising interest rates, the threat of a U.S. recession lingers. If unemployment increases, travel plans will again be shelved.  

Moreover, the impending debt crisis, with the national debt at $31.5 trillion and rising because of the significant interest rate increases, has created a line in the sand in Washington. The slim opposition margin in Congress is seeking austerity concessions from the administration to increase the debt ceiling.  

The administration has said it is unwilling to negotiate on the debt ceiling issue, boosting the potential for default. A default would rattle all markets, especially those that rely on discretionary spending like travel and hospitality.  

While both funds are performing well so far this year, a continuation depends on optimism that the economy will continue to grow. Any recessionary pressures leading to a soft landing over the coming months could keep the bullish trend intact, but a hard landing could be a bad trip.