Solar, sea and shares: how PMs are making ready to play a tourism revival

Travel and tourism were among the most visible sectors damaged by the Covid-19 outbreak as fear of the virus spread and lockdowns restricted almost all non-essential travel.

But what comes next when we take the slow road to recovery? Citywire Selector asked fund managers interested in travel stocks what the future of international travel might look like.

Mike Clements, a fund manager with Downing Fund Managers, said normalization was already being reflected in valuations, with many travel stocks seeing their share prices rebound significantly.

‘For example, the vacation travel company TUI recorded an increase in its share price of around 174% compared to the lows in March 2020. Similarly, the Stoxx 600 Travel and Leisure Index has also rallied significantly from March 2020 lows and almost back to pre-pandemic levels. ‘

Clements said the next few months will continue to be difficult with restrictions on international travel that will not be lifted until vaccination programs for the UK and EU continue to move forward.

“What we know for sure is that there is of course a pent-up demand for low-cost air travel as people are desperate to go on vacation again.

“With many older airlines suffering great damage to their balance sheets and business models, low-cost airlines like Ryanair have improved their relative positions and are almost certain to be the long-term winners in the industry.”

Clements had kicked off his VT lowers unrestricted European income Fund by buying the low-cost airline Ryanair, but has since left the stock with a gain of around 30%.

‘We sold our stake on a corporate governance basis in December 2020 when it became clear that UK shareholders like us would be disenfranchised from January 1, 2021 as Ryanair tried to comply with EU airline regulations requiring that the company must be majority owned by “EU shareholders”. “

Clement still owns travel software group Amadeus IT and said its shares have already started to rebound. “Amadeus powers many airline and travel booking engines and will benefit when people can fly again.”

An underestimated element of travel history, according to Martin Currie, is cost Michael Browne. Browne running Legg Mason Martin Currie European Absolute Alpha Fund said foreign will experience inflationary pressures.

“The outbound travel price will reverse itself after decades of decline,” he told Citywire Selector. However, Browne added that after more than a year of on-off lockdown and some unplanned extra savings over the holidays, many people will be forced to splash around.

“Last year, European citizens in Europe saved EUR 470 billion more than they had intended, which corresponds to 4% of GDP. The UK was even more extreme, saving £ 170 billion or 7.7% of GDP, ”added Browne.

Browne said this pent-up demand was attractive, but there were concerns that summer 2021 might come too early. ‘It’s difficult to imagine a normal vacation time for Europe this summer, considering that with two vaccinations across Europe by July 2021, the entire continent is nowhere near the historic 40%.

“There is a risk of a second year of significantly low demand and we believe the sector does not fully reflect that,” he added.

On the way to China

Jean-Christophe Labbéwho runs the Decalia Millennials Fund, Citywire Selector said, the European experience is not universal, indicating that China’s travel industry has already started to normalize and flourish.

“The upswing has been spectacular and may show us the shape of things that are to come in the West. In October 2020, the Chinese Ministry of Tourism estimated that 637 million people traveled during Golden Week.

“Indeed, we have seen pictures of the federal government in Shanghai, the Great Wall or the Longmen Grottoes in Henan Province that are full of people.” [which is] a sight that has not been seen for a long time. But we still see interesting opportunities in this region, around the typical destinations of Chinese tourists in Southeast Asia. ‘

Labbé said travel stocks, defined in its investment universe, traded sideways between May and October 2020, but rose 48% following the announcement of Pfizer’s vaccine in November. He said the recovery exposure is 40% of the fund across three sub-themes and that it has seen the economy reopen since the third quarter of 2020.

Looking ahead, Labbé expects the fund’s exposure to travel to evolve over the next several months, especially if the reopening continues to appear discounted in some parts of the travel industry. He said sub-segments, namely infrastructure or hotels, could benefit from this.