As Consumers Remain Resilient, Look to PEJ

As consumers remain resilient against rising interest rates, leisure and entertainment ETFs present an interesting opportunity for investors.

The Invesco Dynamic Leisure & Entertainment ETF (PEJ) is well positioned as discretionary spending remains elevated and travel continues to bounce back to pre-pandemic levels.

“I think we’re seeing that the consumer continues to remain strong. I think part of the reason why the Fed has to keep addressing interest rates is because the consumer still has a lot of purchasing power,” Rene Reyna, head of thematic and specialty product strategy for Invesco, told VettaFi. “Restaurants are a prime example. We’re still seeing an increase in consumers visiting [restaurants].”

PEJ comprises 30 U.S. leisure and entertainment companies. These are companies that are principally engaged in the design, production, or distribution of goods or services in the leisure and entertainment industries.

“There’s still a lot of slack, I think, in discretionary spending,” Reyna said. “I was looking in February at the TSA data they put on their website, where you can see flight check-ins in the U.S., and we’re starting to see levels that were at — if not more than — pre-COVID levels.”

Reyna said that the numbers underscore the pent-up demand from consumers, suggesting that reopening trade is still a lucrative investment opportunity.

“What still has potential upside is foreign travel,” Reyna said. “We’re still at pre-pandemic levels there. So I think there’s some pent-up demand in the airline space that we can continue to see, so I think that’s a potential tailwind.”

Reyna said that the companies included in PEJ tend to have clients that are businesses or higher-end consumers, making them generally more insulated from inflation and rising interest rates.

“We think there’s still a little bit runway in lodging and some of the hotels, and keep in mind we are approaching spring break in the U.S. and vacation season with summer travel,” Reyna said. “It seems like there could be in the near term some good opportunities here.”

 

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