Travel & Leisure Europe (TRV) : Momentum on the rise?

The ETF Lyxor TRV (Travel & Leisure Europe), created in 08/2006 is listed in Euro on Euronext, and seeks to replicate the STOXX600 Leisure & Transport Europe index, which consists of 20 European stocks, 65% of which are English, which induce a currency risk as the Pound may prove quite volatile during the Brexit period.

The expenses of this ETF are 0.3% and the AUM of approximately € 13m. Replication is indirect (via Swap) and there is a policy of capitalization of dividends.

Alternative ETFs: EXV9 ( iShares in Euro)

 

Index & components

The ETF Lyxor TRV allows the investor to access a basket of 20 stocks that belong to sectors as different as catering and airlines.

First of all, this index is characterized by the very high weighting of Compass, which accounts for more than 20% of the capitalization; it is in fact a factor of stability because this qualitative English stock benefits from a very defensive business model based on large recurring contracts, with a high exposure in North America (about 50% of turnover). The other major weightings are Sodexo, the French competitor of Compass, and then by more cyclical but highly qualitative hotel companies with a well-established growth profile such as Accor, IHG or TUI, as well as growth companies such as Ryanair (airline) or Paddy Power (online games).

In summary, the index appears to be well balanced between defensive stocks, which account for about 1/3 of capitalization, and on the other hand many growth companies with a varied profile (cyclical or non-cyclical characteristics).

The TRV tracker can be very volatile in times of economic crisis, as tourism is cyclical and may suffer very harsh counter-shocks in the event of a sharp recession, but it is a sector that tends to outperform in times of growth and rising markets as it is based on heavy trends (structural growth in tourism and air traffic).

The other main characteristic of the index, which is tight enough around a dozen securities representing nearly 75% of the capitalization, is to have a high exposure in the United Kingdom (52%) and especially to the Pound (69%), what in Brexit period is not without potential consequences. The sharp decline in the pound against the Euro has so far been offset by higher equity prices, which resulted in a zero-sum game. For the past few months, the price of the pound has stabilized at low levels against Euro and Dollar, but volatility is expected to persist on the British currency as long as the visibility of an overall agreement with the EU and its involvement in the British economy will be a minimum assured, while the maturity of 2019 is approaching.

At the same time, companies in the sector are exposed to geopolitical disturbances in varying proportions according to their business portfolio and, of course, to the terrorism that weighs on tour operators and airlines when certain regions close to tourism, as it recently happened in Egypt or Tunisia.

 

Latest developments

After a 15% rise in 2017, a marked outperformance compared to the Stoxx600 (+ 10.6%), TRV is about stable so far in 2018 (-0.5%).

The sector is benefiting from strong global growth, but is also linked to the sterling currently under pressure as a result of growing Brexit uncertainties,  and energy prices. The sector could benefit from a consolidation of energy prices in the coming days / weeks linked to a rebound in supply, combined with European growth which favors traffic and bookings.

The good performance of Compass which is currently on its historical highs (+ 5% since the beginning of the year) and which weighs 20% of the index is an additional positive factor. "Low cost" airlines such as Easyjet (+ 15.3%) and Ryanair (+ 5.1%) are also doing well because of the very good figures on traffic.