If U.S. consumers keep spending on leisure, as they have most of this year, Invesco Dynamic Leisure and Entertainment (PEJ) ETF is one way to bet on the comeback of restaurant stocks and other get-out-of-the-house companies.
The $1.5 billion fund had a phenomenal 12-month run in which it more than tripled from the pandemic lows of March 2020. That torrid pace was unsustainable, and the ETF’s gains have moderated. The fund is up about 23% this year, beating the S&P 500’s 16% year-to-date gain. Since a June high, the fund is down about 10%.
The ETF is forming a cup-with-handle base with a buy point at 54.72. Shares are trying to regain the 50-day moving average, which for now is an obstacle on the ETF’s rebound. The chart does appear to be making a good bottom; shares made a bullish reversal the past week.
Invesco Dynamic Leisure and Entertainment ETF owns 30 stocks in restaurants, entertainment and related companies. The largest holdings are Starbucks (SBUX), McDonald’s (MCD), ViacomCBS (VIAC), Walt Disney (DIS), Yum Brands (YUM) and Yum China (YUMC). Each of those stocks accounts for 5% or more of the portfolio.
Restaurant Stocks Bolster ETF
But the strength of the fund is restaurant stocks, most of which are in fine shape. Some entertainment stocks are hurting the ETF’s performance.
McDonald’s and Starbucks are breaking out to new highs. Yum Brands is nearing new highs.
The U.S. restaurant industry is rebounding fast from last year’s downturn. After industry sales fell more than 8% last year, they are on pace for a 16.9% jump in 2021, according to FactSet. For 2022, estimates are for a 10.2% increase in revenue. Those numbers are far better than the single-digit gains or declines in the previous several years.
But Disney shares are about 14% below prior highs, and it’s been working on a consolidation since March. ViacomCBS plummeted 50% in the fourth week of March, after analysts turned bearish on video streaming companies. The stock has made nary a recovery.
Retail Data Favors Restaurant Stocks
June U.S. retail sales climbed 0.6%, above forecasts, and the surprise was primarily thanks to restaurants and bars, noted Nicholas Colas, co-founder of DataTrek Research. Consumers spent 2.3% more on eating out than in May.
“Americans are just recently getting back into the swing of leaving the house for a meal or drinks with friends,” Colas said in a research note. “It took until May 2021 to see new highs for monthly spending. June was slightly better.” An important take-away from retail sales data is that consumers are opting more for entertainment close to home than for travel.
Nearly half the ETF was invested in restaurant and hotel stocks as of June 30. Entertainment and media companies made up a combined 35.4%. Travel components Expedia (EXPE) and Choice Hotels (CHH) are both forming bases.
Invesco Dynamic Leisure and Entertainment tracks an index that selects stocks based on price momentum, earnings momentum, quality, management and valuation factors. It is primarily a big-cap ETF, with an average market cap of $42.25 billion. The expense ratio is 0.63%.
Juan Carlos Arancibia is the Markets Editor of IBD and oversees our market coverage. Follow him at @IBD_jarancibia
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