By Francis Kim, product manager, Industry Classification Benchmark
US leisure stocks have experienced the best of times and the worst of times since COVID-19 swept around the world. The pandemic has reshaped consumer behavior globally as populations have on one hand sought to slow the spread of the virus by engaging in more outdoor, solitary activities, while on the other, they have avoided or been unable to take part in leisure pursuits which involve crowds.
This split is already reflected in the performance of US equities. Stocks in our Russell 3000 index classified as recreational vehicle and boat equities by our enhanced ICB classification framework soared from March to June 2020, Conversely, recreational services companies—such as sports and concert venues—have suffered, ending the month of June as the worst performing Russell 3000 ICB subsector.
By definition, the Russell 3000 “Recreational Vehicles and Boats” subsector is comprised of companies that manufacture yachts, boats, motorcycles, RVs, and ATVs. As shown below, this was the top performing Russell 3000 subsector for the 3-month period ending June 30, 2020, outpacing the second highest performing subsector by 36%.
The strong performance can likely be attributed to the pandemic-driven shift in consumer preferences. As safety guidance stressed the importance of outdoor, socially distanced activity, consumers looked to take a more private approach to travel and leisure—bolstering sales of boats and RVs.
While boat and RV company performance has surged, the ripple effect of the pandemic has hurt “Recreational Services”—a Russell 3000 subsector consisting amusement arcades and parks, sports team, concert, motor sports, live event, and race track companies. Unlike the Recreational Vehicles and Boats subsector, Recreational Services didn’t feel the impact of the pandemic immediately. The subsector’s performance took a downturn in June 2020, in the wake of the widespread event cancellations and venue closures triggered by the pandemic. As shown below, Recreational Services was the worst performing subsector in the month of June.
These numbers are a reflection of how US consumers and businesses alike took drastic measures to adjust and ensure safety as the early months of the pandemic unfolded. While the negative impact of COVID-19 is immeasurable, some areas of the US equity market—such as RV and boat stocks—have benefitted from behavioral shifts. The ICB classification framework enables this granular sector view into the story of the pandemic’s impact on US equity markets.
It remains to be seen whether, as the fight against COVID-19 evolves, investors will continue to flock to stocks offering solitary pursuits, or whether interest will return to industries which rely on income from crowds.
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