Why The PAWZ ETF Is The Perfect Pandemic Play

Most of the exchange traded funds benefiting from the coronavirus pandemic have human elements: e-commerce, video games and working from home, among others.

What Happened: Up almost 37% year-to-date, the ProShares Pet Care ETF PAWZ merits a place in the pandemic ETF conversation.

As is the case with cloud computing, online retail and working from home, the pandemic is setting in motion long-term trends that have favorable implications for the fast-growing pet care industry.

“The current pandemic may be a catalyst for the long-term trends supporting the growth of the pet care industry,” according to ProShares research. “In fact, the pet care business, as tracked by the FactSet Pet Care Index, has outperformed the S&P 500 by nearly 24% on a year-to-date basis through August 31, 2020.”

Why It's Important: With all the sheltering in place and working from home folks have been subjected to this year, many are realizing pets are excellent avenues for reducing stress and loneliness.

As ProShares notes, pet adoptions jumped 60% year-over-year during the pandemic. Additionally, there are favorable demographic trends pertaining to "PAWZ," including 26% of millennials spending more on their dogs than on themselves during these trying times.

Along those lines, healthier pet food is an obvious growth driver for "PAWZ" by way of companies such as Freshpet FRPT.

“The pet food industry’s shift towards healthier and more environmentally friendly products may be advanced by the increased time and attention devoted to pets during the pandemic,” said ProShares.

“Freshpets’ success is a prime example. The company offers 'a fresh take on pet food' with premium food that requires refrigeration. Freshpet generated year-over-year earnings growth of 73% per their most recent earnings release in August.”

What's Next: "PAWZ" is higher by almost 54% over the last six months, confirming its positive pandemic leverage, but the better news is that there impressive long-term trends at play in the pet care industry.

Some of that growth will come by way of retailers like Chewy CHWY.

“Retailers of pet products have been another bright spot in the industry,” said ProShares.

“Chewy is one of the larger players in the space and supplies items like pet medications, food, treats and other pet-health products. As the company is an e-commerce business, it has benefited both from tailwinds supporting the demand for pet care products, as well as consumers’ shift towards online retail. Second-quarter results for the company revealed that Chewy saw revenues surge 47% year-over year.”