Travel
It will come as no surprise that the global travel sector has been hit extremely hard by the ongoing COVID-19 pandemic. Planes everywhere are grounded, beaches and restaurants sit empty, and people everywhere wonder when things may return to normal.
According to the World Travel & Tourism Council, the global travel and tourism sector accounts for 10.3% of global gross domestic product and supports 330 million jobs worldwide. From car rental companies to hotels, there is no corner of the travel sector that has been untouched by the pandemic.
Even though countries around the world are beginning to ease lockdowns and discuss how to reopen responsibly, COVID-19’s impact on the global travel sector has been staggering. The U.S. Travel Association expects a $519 billion decline in travel spending in the U.S. in 2020, with travel-related job losses reaching eight million by the end of April alone.
These projections, though undeniably bleak, do not capture the long-term trajectory of the travel sector.
In the short-term, travel-related businesses are going to suffer mightily. In the long-term, however, the pandemic will end and people will start traveling again. The pandemic will not erase the essential need for travel, but it will change how we travel. Industry experts anticipate that technology will play an increasingly important role in helping to limit physical contact between people and surfaces.
Airports, for instance, are likely going to increasingly implement new technologies that provide for a less crowded and more touchless travel experience. Airports were already moving in this direction, but the painful lessons of COVID-19 will accelerate the transition.
Amid all the doom and gloom, it is important to note that massive disruptions, though terribly painful, ultimately ignite innovation and drive creative problem solving.
Airbnb was founded in 2008, in the depths of the Great Recession, and became a wildly popular solution to the problem of soaring rent prices. By 2018, Airbnb owned about 20% of the entire U.S. consumer lodging market.
The global travel sector is down, but not out. New companies will emerge from this crisis and disrupt the sector in ways we cannot anticipate, and established companies will need to innovate, streamline, and modernize in order to draw customers back. In this space, there may be opportunities for intrepid investors.
For those interested in the investment potential of this crucial sector, there are a few key points to understand.
What Makes up the Travel Industry?
The travel sector is vast and contains many industries, including transportation, lodging, food and beverage, entertainment, and more. Travel may be domestic (within one’s home country) or international (outside of one’s home country), and may be for pleasure (tourism) or business.
The economic significance of the travel sector is enormous. For example, international and domestic travelers in the U.S. directly spent about $1.1 trillion in 2019. This spending supported 15.8 million jobs and generated $179.7 billion in tax revenue.
In comparison, in 2019, U.S. consumers spent about $400 billion on consumer technology and about $460 billion on new vehicles.
As a percentage of gross domestic product (GDP), the travel sector’s weight varies significantly from country to country. For example, 2.9% of the U.S.’s GDP is attributed to travel, while 15% of Spain’s GDP and 13% of Italy’s GDP are attributed to travel.
The immediate economic impacts of the pandemic lockdown will be most acutely felt in countries where travel spending represents a large portion of overall GDP, and governments around the world are scrambling to develop recovery plans to prevent layoffs and bankruptcies. In mid-April, U.S. airlines agreed to a deal with the federal government for about $25 billion in assistance in exchange for airlines continuing to pay employees through September 30th. 70% of this federal assistance comes in the form of a one-time cash grant that does not need to be repaid, while the remaining 30% comes in the form of low-interest loans that must be repaid over 10 years.
The Treasury secretary, Steven Mnuchin, said in a statement that the agreement would “help preserve the strategic importance of the airline industry while allowing for appropriate compensation to the taxpayers.”
Why Invest in Travel?
The travel sector is in survival mode at the moment. The name of the game at this point is to maximize efficiency and raise enough money to cover costs while the pandemic runs its course.
Government assistance will help in the short-term, but in the long-term people will need to start traveling again in order for businesses to stay afloat. Looking at the situation pessimistically, it is possible that a prolonged shutdown will lead to a recession, and people travel less during recessions.
On the other hand, if the pandemic is brought under control in the near future, it is also possible that demand for travel will increase sharply. Another possibility is one in which demand for domestic travel increases while demand for international travel stays low.
There is some evidence that this last possibility may be the most likely. After easing lockdowns and reopening the economy, domestic air travel in China has doubled over the past two months.
After weeks (and in some places, months) of lockdown, people everywhere are eager to leave their homes. One recent survey of 2,000 travelers found that for 82% of respondents, travel was only temporarily paused, and 42% would be ready to make travel reservations if there were no deposits required or cancellation fees.
There is still enthusiasm and demand for travel, but the timing of when and how travelers can make their plans a reality remains to be seen. For investors interested in capitalizing on a resurgent travel market, it will be crucial to stay informed and keep a close eye on public sentiment, easing or tightening of government travel restrictions, and the market’s ability to meet demand when it returns.
How to Invest in Travel
Naturally, investing in an industry in crisis can be risky, but travel-related ETFs and mutual funds allow investors to access the space without tying them to any one company. A search on Magnifi suggests there are a number of ways to gain access to the travel segment via these funds.
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The information and data are as of the April 30, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Forestry
One of the more interesting quotes often attributed to famed investor Warren Buffett concerns planning for the future: “Someone’s sitting in the shade today because someone planted a tree a long time ago.”
Forests take decades to grow and mature and only moments to destroy. Properly managing a forest involves meeting the economic necessities of the present while laying the groundwork for ecological health and economic potential into the future. Forests provide countless, critical ecosystem services, including storing and purifying water, stabilizing soil and preventing erosion, capturing carbon dioxide from the atmosphere, and fostering biodiversity.
Forests also provide significant economic benefits, including timber for construction, wood pulp for paper, and firewood for heating and cooking.
Historically, the ecosystem services and economic benefits of forests have often been in conflict with each other, with people often placing short-term economic benefits above long-term ecosystem health, ultimately at the cost of both.
For a recent example of this conflict, look no further than the 2019 Amazon rainforest wildfires. In an attempt to clear land for cattle grazing, ranch owners across the shrinking Amazon rainforest lit fires that quickly spread out of control, burning an estimated 2.3 million acres of forest and darkening the midday sky of cities hundreds of miles away.
Forests must be carefully managed in order to provide mankind with crucial economic benefits while also performing essential ecological functions. Millions of acres of burned rainforest may provide ranchers with a temporary economic boom in terms of a larger grazing area, but the long-term effects of haphazardly clearing forests result in dire ecological and economic costs.
Professionals in the forestry industry work to achieve a sustainable balance between the environmental and economic demands placed on forests. Though the management of forests is a very old profession indeed, the forestry industry is currently in the midst of a rapid modernization as business and environmental interests implement technological innovations that increase profitability and improve ecological health.
This modernization is especially significant because of the role forests play in fighting climate change. Forestry professionals are looking to innovation to help them do more with less, and the growing urgency to address climate change will likely mean that innovation will be highly valued.
For those interested in the investment potential of this important industry, there are a few key points to understand.
What is forestry?
The North Carolina Forestry Association defines forestry as “The art and science of managing forests to produce various products and benefits including timber, wildlife habitat, clean water, biodiversity and recreation.”
As an industry, forestry is vast, encompassing a multitude of business operations concerned with harvesting, transporting, refining, and distributing forest products. Deeper still is the underlying machinery and technology that make modern forestry possible. 100+ years ago, harvesting timber often involved men felling trees with axes or saws and transporting the timber to a sawmill via mule train. These days, timber is often harvested using cutting-edge technology, such as the cut-to-length (CTL) harvesting method. With CTL harvesting, specialized equipment cuts, cleans, and loads logs for transport in a matter of seconds, all while operators are safely inside the machine cabs and away from falling branches and dangerous terrain.
There is a growing movement in the forestry industry towards what is referred to as “precision forestry.” Precision forestry is an approach to managing forests that utilizes advanced technology to unlock greater economic and environmental value through improved information gathering and operational control.
For instance, lidar is a cutting-edge surveying technology that uses lasers to generate extremely detailed maps. After mapping a forested area using lidar, forestry professionals are able to accurately estimate the quantity of standing timber, as well as where the access road should be built and which machinery should be brought in to do the job. Better information through technologies like lidar means that forest managers are able to make decisions that improve cost-efficiency and minimize environmental damage.
When combined with other cutting-edge technologies, such as drones, soil sensors, and IoT-integrated devices throughout the harvesting and reforesting process, precision forestry is set to unlock significant value across the forestry industry.
Why invest in forestry?
While the accelerated adoption of advanced technologies is likely to improve cost-efficiency and drive innovation across the forestry industry in the coming years, current trends indicate that the industry faces tough headwinds. The demand for construction lumber, which surged in the years following the Great Recession, is waning, and domestic producers are facing increased competition from foreign lumber firms.
In the U.S., industry performance is highly correlated with the strength of the housing market: a robust housing market usually means more new homes and an increased demand for wood products.
For instance, Weyerhaeuser (the largest forest product company in the U.S.) experienced a sharp stock price drop as a result of the Great Recession and the collapsing housing market, from a high of $86 per share in early 2007 to a low of $15 per share in mid-2010.
U.S. revenues from forest products in 2019 totaled about $128 billion, and revenues from exports of forest products in 2019 totaled about $16 billion. Paper mills, which currently comprise the single largest segment of the U.S. forestry market, are forecast to see revenue decrease by -2.6% annually over the next five years. Sawmills and wood production, the second-largest segment, are forecast to see revenue increase by 1.1% annually over the next five years.
The segment with the fastest projected growth is prefabricated home manufacturing (think mobile or modular homes), which is forecast to see revenue increase by only 2.2% annually over the next five years – a sharp decline from the 8.6% annual growth the segment saw during the previous five years.
Successfully investing in forestry involves understanding the underlying market forces driving industry performance and trends, while assessing the value of a mid or long-term stake in the industry relative to other, higher-performing industries.
How to invest in forestry
However, forestry is a legacy industry that is dominated by a few major players. That means investors have few choices when investing directly, and that fact puts them at risk in the case of an industry-wide downturn. Investing in forestry via related ETFs and mutual funds, though, allows investors to access the space without tying them to any one company. A search on Magnifi suggests there are a number of ways to gain access to this segment via these funds.
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The information and data are as of the April 12, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
5G
Although 5G appears to be a relatively new trend, it has been in the works for much of the last decade. This new type of internet access, which is anticipated to potentially replace in-home WiFi in the near future, is beginning to emerge among a few select carriers. Verizon, T-Mobile, and other popular carriers are making it easy for their current customers to transition from 4G LTE to 5G mobile internet, which is a stepping stone for applying the technology to other Wi-Fi-enabled devices in the future.
[5G is Just Part of it. Invest in Mobile Technology as a Whole.]
But investing in 5G while the concept is still relatively new, you can gain an edge over the competition by being one of the first to support an up-and-coming service that is likely to have a strong impact on the future of mobile internet.
What Is 5G?
Although some people may simply think of 5G as a replacement for WiFi, the overall potential of the technology is much more complex. First and foremost, 5G is beginning to replace the 4G LTE connection that most cell phone carriers currently use to provide internet access when a reliable WiFi connection is not available. 4G, which came out approximately a decade ago, was a modern replacement for the primitive 3G and 2G mobile internet of early cell phones. Each version made new features possible, increased the speed and capability of cellular data, and boosted the range at which cell phones could get a reliable signal. Like previous upgrades, the widespread release of 5G technology is expected to increase our ability to immediately access the information we need from anywhere in the world.
[What will 5G mean for the future of video streaming?]
5G coverage is divided into three groups: low-band spectrum, mid-band spectrum, and high-band spectrum. High-band spectrum, which is the classification that most major carriers are currently focusing on, generally provides the strongest and fastest signals. However, this type of spectrum has a much more difficult time reaching through buildings than low-band and mid-band spectrum. For this reason, it is important to carefully consider the pros and cons of each type of spectrum to get an idea of which is likely to be the most successful in your area before choosing one to purchase or invest in.
Why Invest in 5G
Although the 2020 5G market is expected to be in the range of $5 billion, 5G technology is anticipated to grow exponentially over the next five years, reaching over $650 billion by 2026.
The reason for this is the fact that widespread 5G coverage has not yet replaced 4G LTE and WiFi, in part because of regulatory hurdles and delays. Once those issues are resolved, it is expected that 5G adoption will take off nationwide, but it’s still not clear what that timeline will look like and how soon all of this will happen. Still, that explosive potential is why this up-and-coming form of mobile internet is an important area for investors that are interested in the latest technology to keep their eyes on.
After all, like many emerging industries, 5G technology is being pioneered by a handful of standout companies, both large incumbents and fast-growing startups. And it’s still early in this cycle. Investors who get in on 5G now will have far more upside to ride up than those that wait until the technology is fully rolled out and in broad use.
How to Invest in 5G
However, like many types of new technology, investing in 5G does come with potential risks. Although 4G, WiFi, Bluetooth, and other older signals have been studied in-depth as far as both immediate and long-term safety, not as much is currently known about the impact of long-term exposure to 5G’s electromagnetic fields. What’s more, it’s not yet clear how soon the national 5G roll-out will actually happen nor which companies will take the lead.
Investing in the sector via an ETF or mutual fund, however, is a good way to counter these risks while still gaining exposure to this high-potential segment. A search on Magnifi indicates there are a number of ways for investors to access 5G this way.
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Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.
The information and data are as of the April 8, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.