Should Investors Take the Leisurely Approach to Owning Carnival?

As I watched the Las Vegas Golden Knights play the National Hockey League’s Montreal Canadiens in front of a sold-out crowd at the T-Mobile Arena in Vegas, I couldn’t help but think about Carnival (NYSE:CCL) stock and all the other leisure and hospitality companies punished by an unrelenting Covid-19. 

CCL stock cruise stocks docked cruise ships
Source: Kokoulina / Shutterstock.com

How so, you ask?

Well, here was this packed arena with something like 22,000 people in the crowd, and Carnival’s boats were still sitting in port waiting for the all-clear so they could start sailing again. 

However, come the end of July, the cruise operator’s new ship, Mardi Gras, will sail from Port Canaveral on a seven-day Caribbean cruise. 

It’s about time.

Two exchange-traded funds have launched since the beginning of May for those who believe cruising will completely come back along with the rest of the travel industry. 

For those who aren’t familiar, the SonicShares Airlines, Hotels, Cruise Lines ETF (NYSEARCA:TRYP) launched on May 20. Two weeks later, on June 4, the Defiance Hotel, Airline, and Cruise ETF (NYSEARCA:CRUZ) launched. 

Both hold Carnival stock. One of them is a better buy. Here are my thoughts on the subject. 

Is CRUZ and CCL Stock the Better Combination?

Whenever I come up with options for a particular stock, I’m always trying to balance the stock itself with the need to deliver results over the long haul. 

So, in the case of CCL, CRUZ has a weighting of 6.66% of the ETFs total assets. And, while it’s only the ETF’s third-largest holding, it’s 156 basis points higher than TRYP. From that perspective, it’s the better buy because you’re capturing greater exposure to CCL, a stock that could return to the $70s before you know it.   

On the other hand, you could capture CCL from within a broader fund with lower near-term risk, such as the SoFi Social 50 ETF (NYSEARCA:SFYF). 

“SPYF is composed of the top 50 most widely held U.S.-listed stocks on SoFi Invest. Stocks are rebalanced monthly and weighted according to how much money members have invested in each company at the end of every month. The SoFi Social 50 ETF seeks to track the performance, before fees and expenses, of the SoFi Social 50 Index,” states SPYF’s fund summary. 

There are some solid stocks in the top 10 – Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), and Microsoft (NASDAQ:MSFT) – along with some not-so-good ones like AMC Entertainment (NYSE:AMC) and GameStop (NYSE:GME).

CCL is not among the top 10. However, its weighting of 2.39% puts it in 13th place out of 50. That’s not too shabby. And SFYF only costs $29 per $10,000 invested compared to $45 for CRUZ and $75 for TRYP. 

Fees matter.    

TRYP Is Expensive, But …

What does an investor get with TRYP? Well, on the downside, high fees. However, the weighting methodology is quite interesting. 

According to page 2 of the summary prospectus, the ETF is reconstituted twice a year in June and December. As far as I can tell, each of the three largest airline, hotel, and cruise line companies by market capitalization are given a weighting of 4.5%. That accounts for 40.5% of the portfolio. 

To qualify for inclusion in the Solactive Airlines, Hotels, Cruise Lines Index, a stock must generate 50% of its revenue or more in one or more of these industries. The remaining components are weighted based on their market cap to a maximum of 4%. 

So, that means the index will always have at least 24 stocks based on 100% less (9 multiplied by 4.5%) divided by 4%. According to TRYP’s holding list, it currently has 59 holdings, and CCL is No. 1.

Further, based on the fact each of the three largest cruise operators by market cap gets rebalanced to 4.5% twice a year, CCL investors will always have good exposure to Carnival’s business.  

The million-dollar question is whether it’s worth 0.75% a year.     

 

The Bottom Line       

Looking at the SoFi 50’s holdings, I can honestly say that I wouldn’t have a problem owning 38 ETF positions. That said, being opposed to 25% of a portfolio is not a good place to be. 

Like a golfer in the U.S. Open with a putt to win the tournament, I want to be 100% confident before stepping up to the putt. The same goes for investing. 

Fees do matter. 

If it were up to me, and I wanted to make a bet on Carnival but wasn’t 100% sure, I’d go with SFYF instead. It’s an economical and leisurely way to bet on CCL stock.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.


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