Each season brings with it a new batch of investing ideas, and summer is no exception to the seasonal trading theme. In fact, it's often argued that summer's seasonality opens a big tent of possibilities, enabling numerous ETFs to grab attention as the weather heats up.
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Many of the electronically traded funds often prescribed as cures for the summertime investing blues are related to the consumer discretionary sector, including funds focusing on the travel & leisure segment. Enter, PowerShares Dynamic Leisure & Entertainment Portfolio (PEJ).
The $117.6 million PEJ, which debuted over 11 years ago, tracks the Dynamic Leisure & Entertainment Intellidex Index. That benchmark is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including price momentum, earnings momentum, quality, management action and value, according to PowerShares, the fourth-largest U.S. ETF issuer.
Healthy employment and income trends are promoting higher discretionary consumer spending and support Fitch's Stable Outlook for the U.S. leisure sector," said Fitch Ratings in a recent note. "Competition and mixed consumer confidence barometers balance these positives within the context of producer sector weakness, which led Fitch to trim its 2016 U.S. GDP growth outlook to 1.8 percent from 2.1 percent in May. However, select manufacturing data, such as the ISM purchasing managers index, rebounded in May and June; this suggests a brighter outlook for industrial production in the second half."
Although it's home to just 30 stocks, PEJ does offer quasi-diverse consumer discretionary exposure as several of the sector's sub-industry groups are represented within the ETF. For example, PEJ's top 10 holdings include five airlines, two media names and two restaurant stocks.
Overall, eight of PEJ's holdings are airline stocks, which are classified as members of the industrial sector, while another nine of the ETF's constituents are restaurant names.
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Most travel and tourism trends are encouraging. North American airlines are reporting passenger demand growth but unit revenue weakness due to excess capacity and low fuel prices. Strong advance bookings for the 2016-2017 wave season are telegraphing healthy near-term cruise demand growth. Geographic diversification will help online travel agencies (OTAs) navigate disruptions from geopolitical events (i.e. terrorism), though some idiosyncratic risks remain. OTAs should continue to see strong leisure demand, but corporate travel will soften further, adds Fitch.
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