Leisure stocks are among the strongest plays on the novel coronavirus and that’s been true in both directions. As the March market meltdown taught investors, leisure stocks — be they amusement park operators, casino companies or cruise lines — are particularly vulnerable to bad news stemming from the virus.
Conversely, the rebound off of March lows was led in part by companies with leverage to the reopening theme, including plenty of names from the aforementioned industries. In other words, leisure stocks are good news/bad news plays this year, and that makes them a double-edged sword in today’s market.
Investors looking for upside in leisure equities can reduce some of the volatility by eschewing stock picking and instead opting for funds. Here are three exchange traded funds to consider:
- Invesco Dynamic Leisure and Entertainment ETF (NYSEARCA:PEJ)
- VanEck Vectors Gaming ETF (NASDAQ:BJK)
- Roundhill BITKRAFT Esports & Digital Entertainment ETF (NYSEARCA:NERD)
Some states have seen dramatic increases in Covid-19 case counts in recent weeks and that has investors skittish. In other words these days, it’s hard to marry “safety” and leisure stocks, but there are still smart plays in the sector today.
Invesco Dynamic Leisure and Entertainment ETF (PEJ)
Expense ratio: 0.63% per year, or $63 on a $10,000 investment
As one of small number of funds with “leisure” in its name, the Invesco Dynamic Leisure and Entertainment ETF fits right in on this list. This ETF tracks the Dynamic Leisure & Entertainment Intellidex Index, which really lives up to the name “dynamic.”
That benchmark is rebalanced four times a year, and following the May reshuffle, the fund’s airline and casino holdings were jettisoned. Those changes reduce PEJ stock’s correlation with Covid-19 reopenings, but that could be for the better.
More than 40% of the fund’s roster is allocated to consumer discretionary stocks, the bulk of which are fast-casual and fast food names with robust takeout and delivery operations that can thrive in this era of social distancing. Think Chipotle Mexican Grill (NYSE:CMG) and Domino’s Pizza (NYSE:DPZ), just to name a pair.
The other dominant sector of PEJ is communication services, with holdings including Disney (NYSE:DIS). PEJ’s exposure to this sector does present some risk as its holdings from this group, including Disney, are consumer-facing, large group gathering types of businesses, be they amusement parks, concert and sports venues or movie theaters.
Still, with the departure of airlines, casinos and cruise operators, PEJ offers some degree of safety compared to other leisure-based investment vehicles.
VanEck Vectors Gaming ETF (BJK)
Expense ratio: 0.66% per year
The VanEck Vectors Gaming ETF is the lone ETF dedicated to casino operators. That unique status means BJK is not only a heavy leisure fund, but one with significant exposure to Covid-19’s wider effects on the economy. Over the near-term, there are a few things to consider with this ETF.
Las Vegas and the broader U.S. gaming industry aren’t all the way back to normal and it might be 2022 before that’s the case. But on the other hand, reopenings in regional markets (casino destinations that aren’t Las Vegas) are strong and operators are boosting margins at some of those venues.
Finally, while the road back from the coronavirus shutdown is going to be long and bumpy for U.S. and Asian gaming companies, BJK’s level of safety is enhanced by the burgeoning domestic sports wagering and online casino markets, which are fast-growing, high margin segments.
Should expectations for those niches come close to being accurate, BJK won’t just be a safe leisure play. It’ll be a rewarding one, too.
Roundhill BITKRAFT Esports & Digital Entertainment ETF (NERD)
Expense ratio: 0.25% per year
Including the Roundhill BITKRAFT Esports & Digital Entertainment ETF on this list of leisure stocks may make you pause. While holdings in video game ETFs usually hail from the communication services and technology sectors, gaming is still very much a leisure activity.
What’s interesting about NERD is that of the three leisure funds mentioned here, a strong case can be made that this is the safest idea for very simple reasons. Assuming there’s another shutdown forced by the coronavirus, video game stocks aren’t going to be pinched. They’ll either hold steady or further build on recent bullishness because people still want to be entertained when they’re sheltering in place.
A slew of data points, be they sales reported by NERD components or hours viewed on Twitch, confirm that video game stocks are right up there with work-from-home names as winners in the Covid-19 environment. And don’t forget that the console upgrade cycle is coming later this year, which should provide additional tailwinds for NERD.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.