Maybe The 'Purrfect' Investment For Pet Owners

It's often said “there is an ETF for that.” For investors looking to capitalize rising pet ownership trends and the related demand for health care and retail services, there is indeed, an ETF for that.

What Happened

The ProShares Pet Care ETF PAWZ, which debuted last November, fits the bill as a thematic ETF, a trait that can be a gift or a curse depending on the theme in question. In the case of PAWZ, a slew of favorable fundamental data underpin the pets investment thesis.

For those not content with knowing that pet ownership rates in the U.S. exceed child birth rates or that everyone's two favorite demographics – baby boomers and millennials – are willing to spend on their pets, there are more convincing data points.

“The pet care business has seen twice the percentage growth of GDP in the U.S. since 2007, including through the Great Recession,” according to new research from Maryland-based ProShares. “And those closest to the industry don’t see any signs that pet owners will become any less willing to open their pocketbooks on pet care.”

Why It's Important

With 39% of its weight allocated to veterinary pharmaceuticals and diagnostics companies, PAWZ can be seen as a quasi-health care ETF with dedicated pet exposure. Good news for investors: there is no Medicare, Medicare For All or related, thorny political issue associated with pet health care. That might be part of the reason why PAWZ is up 14.40% year to date, an advantage of more than 900 basis points over the largest traditional health care ETF.

“In pet pharmaceuticals, there’s no real threat of generics pressuring the business of drugmakers, or insurers and regulators trying to keep a lid on pricing,” said ProShares. “There is no Medicaid for dogs and cats, and pet owners are increasingly willing to spend money on giving their animals the very best in care.”

What's Next

There is a retail side to PAWZ with the fund's exposure to pet supply stores and food manufacturers, but the ETF is beating the largest traditional retail ETF this year by a 7-to-1 margin.

Additionally, there could eventually be some online retail exposure in PAWZ if the upcoming Chewy initial public offering makes its way into the ETF. That stock is expected to commence trading on Friday.

“The pet industry, like many others in the United States, is in the midst of a shift from in-store to online purchases, with e-commerce representing a 14% share of the food and supplies market segment in 2017, up from 4% in 2015, and projected to grow to approximately 25% by 2022,” said ProShares, citing Chewy's S1 filing.

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