The CRUZ ETF- A Bearish Trend and Reversal

Andrew Hecht - Barchart - Thu Feb 16, 2023

The Defiance Hotel Airline and Cruise ETF product (CRUZ) has been around since June 2021, more than one year after the global pandemic decimated the industry. While travel demand picked up in 2022, CRUZ moved lower with the overall stock market. However, as the pandemic fades in our rearview mirrors, more people are traveling for business and pleasure, causing CRUZ’s trend to turn positive since the early October 2022 low.

While the travel demand has increased, the potential for a recession, lagging inflation, and rising interest rates pose risks for the travel industry over the coming weeks and months.

CRUZ fell with stocks in 2022- A low in October 2022

In 2022, the most diversified U.S. stock market index, the S&P 500, fell 19.44%. The index reached a low of 3,491.58 in October 2022 and rallied to the 4,120 level on February 16, an 18% recovery.

The chart shows the CRUZ ETF moved from $21.24 on December 31, 2021, to $16.06 per share on December 30, 2022, a 24.2% decline as the travel and hospitality ETF underperformed S&P 500. At $19.53 on February 16, CRUZ had recovered by 21.6% since the end of 2022, outperforming the leading stock market index over the first weeks of 2023.

CRUZ's top holdings include the leading leisure and travel companies

The Defiance Hotel Airline and Cruise ETF (CRUZ) owns shares in the following companies:

The chart shows CRUZ holds the leading travel and leisure, but the portfolio owns many other companies aside from the top fourteen holdings.

Liquidity and metrics for the travel ETF

At $19.53 per share, CRUZ had over $59.1 million in assets under management. CRUZ trades an average of 23,926 shares daily and charges a 0.45% expense ratio. The ETF pays a small blended $0.02 dividend, translating to a 0.10% yield. The 24.88 price-to-earnings ratio compared to 17.36 for the S&P 500 SPR (SPY), the ETF that tracks the S&P 500 index. Based on the P/E metric, CRUZ is expensive compared to other stocks.

The case for adding CRUZ to portfolios at the current price

The following factors support CRUZ and the travel and leisure sector in 2023:

The travel industry is experiencing pent-up demand in the aftermath of the global pandemic.
Workers are returning to the office, and business travel is increasing.
China has lifted COVID-19 travel protocols, opening the travel and leisure sector for the world’s most populous country.
Wages have been rising, and U.S. unemployment at 3.4% supports the demand for vacations.

After the pandemic devastated the travel industry, it made a comeback in 2022, which looks to continue in 2023.

The risks for the travel sector over the coming months

Travel and leisure face the following challenges:

The rising tensions on the geopolitical landscape between the U.S. and China and the war in Ukraine create roadblocks to travel.
Rising interest rates and inflation could push the markets into a stagflationary environment, increasing travel costs and unemployment.
Declines in the stock market since early 2022 have eroded personal wealth, which means consumers and businesses are likely to be cautious about travel and leisure expenditures.

The path of least resistance of the CRUZ ETF depends on profits for the airlines, hotels, and cruise lines. Like many other businesses, the economic and geopolitical landscape will determine if the recent bullish trend continues. CRUZ is a diversified product that mitigates the risk of holding individual companies, providing sector-based exposure.

Meanwhile, the trend is always your best friend in markets across all asset classes, and it remains bullish in travel and leisure in early 2023. However, the sector faces many potential pitfalls that could derail the recent rally. When approaching CRUZ or any travel and leisure stocks, careful attention to the sector’s risk-reward dynamics is necessary to protect capital in the current dynamic environment.

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On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.