When the economy sours, you definitely don’t want to have any “dogs” in your portfolio. Fortunately, the ProShares Pet Care ETF (CBOE:PAWZ) has already proven itself, and the PAWZ ETF is a potentially pandemic-proof asset.
If you’ve never considered pet care as an investment class, it’s definitely worth a look. However, not everyone wants to conduct research and be a stock picker. Exchange-traded funds allow investors to let the experts do the picking for them.
And the experts at ProShares have handpicked a surprisingly diversified portfolio of companies related to the pet care market. You’ll find some very familiar names in there along with a few surprises.
So, as soon as you’re finished walking the dog or feeding your cat, let’s dig up the facts and see if we can unleash the animal spirits within PAWZ.
PAWZ ETF: A First in the Market
The ETF market has absolutely exploded in the past several years. There’s an ETF for just about every niche market out there somewhere. But interestingly enough, until fairly recently there wasn’t an ETF for the pet care industry.
That all changed in November of 2018 when ProShares introduced PAWZ, billed as “the first ETF that allows investors to capitalize on people’s passion for their pets.” To this day, there’s really no other ETF that really captures this niche like PAWZ does.
The fund is based on the FactSet Pet Care Index, which consists of a mix of U.S. and international pet stocks covering all aspects of pet ownership. The index is rebalanced on a monthly basis and is reconstituted annually.
The geographical diversification is broad, as the companies represented in the fund come from the U.S. and U.K. but also Switzerland, Germany, France and Japan.
Long-term income investors should appreciate the fact that this pet care ETF pays a quarterly dividend. Not only that, but the ETF has a very reasonable expense ratio of 0.5%. In other words, the fund’s managers won’t take a huge chunk of your returns.
An All-Weather Fund
But the diversification isn’t just limited to the geographical dispersion of the companies. The PAWZ ETF is a multi-sector fund that’s not limited to the most obvious pet care businesses.
Sure, there’s PetMed Express (NASDAQ:PETS) and Freshpet (NASDAQ:FRPT) in there, as we would expect from a pet care ETF. But there are also some famous names that offer less direct exposure to pet care. One example is global food giant Nestle (OTCMKTS:NSRGY). Many people think of Nestle in terms of yummy cocoa and chocolate edibles, but a glance at Nestle’s pet-product offerings should change that perception. Pet owners should be quite familiar with Alpo, Purina, Friskies and Fancy Feast … these all fall under the Nestle umbrella of pet products.
Another example would be J. M. Smucker (NYSE:SJM), which is often associated with jellies and jams. This company is included in the PAWZ ETF because owns a suite of famous pet food names. These include Gravy Train, 9 Lives, Kibbles ‘N Bits, Milk Bone, Meow Mix and Snausages.
Along with the company-wide diversification, it’s just a good policy to include defensive stocks like NSRGY and SJM in the portfolio. Putting these safety stocks in the ETF’s holdings should help to make it more weather-resistant during economic downturns.
And indeed, the pet care market has already proven itself as a relatively bulletproof sector during the worst of times. As ProShares points out, the pet-care industry “has grown steadily every year since 2001, even during the Great Recession.”
Bottom Line on PAWZ and Pet Care Stocks
There’s no need to let the dog days of summer — and rough patches in the economy — get you down. Like our pets, PAWZ will be by your side through both the good times and the not-so-good times.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.