We’ve heard a lot about the new trends that emerged as the novel coronavirus spread across the globe in 2020. The rise of work-from-home companies. That initial mad rush for toilet paper. The adapt-or-die situation that many restaurants found themselves in. But there’s one trend that you may not have heard as much about — and it has the ProShares Pet Care ETF (BATS:PAWZ) looking like a great choice for 2021.
As businesses closed down and citizens were stuck at home, feelings of isolation and loneliness began to set in. And in the wake of that loneliness, people started adopting animals. A lot of animals. So many animals that many shelters are now experiencing a shortage of adoptable pets.
The Washington Post quoted Cindy Sharpley, founder and director of Last Chance Animal Rescue, as saying, “We thought people would stop adopting because they would need to conserve their money. […] But that hasn’t happened. It’s been just the opposite. They’re going like hot cakes.”
Pets Are a Vital Part of American Life
According to a survey by LendingTree, not only were 46% of Americans considering getting a pet in the next six months, but 8% of the people surveyed had gotten a pet between March and September of last year. And that’s despite roughly 70% of U.S. households already being home to one or more pets. So, while the pandemic may have pushed the trend of pet ownership further, it was already on the upswing.
So far, so good. All of these animals getting new homes is great news all on its own. But it also sets up a great investment thesis for the PAWZ ETF (exchange-traded fund).
As mentioned in that same LendingTree survey, taking care of a pet can require a surprising amount of money. They found 62% of people were “at least somewhat shock upon finding out how much owning a pet actually costs.” Of course, that might be bad news — except, young people seem more than willing to go into debt in order to take care of their furry friends. LendingTree also pointed out that almost half of the people surveyed had used loans or credit to cover pet-related expenses.
And it’s no wonder. As millennials and younger generations have been taking longer to hit some of the traditional life milestones — like buying a house or starting a family — they’ve also increasingly made pets their priority. Pet insurance is becoming a more attractive benefit for jobs to offer. In fact, in some cities, pets are starting to outnumber kids.
On top of that, it’s not just that there are more pets, or that people are increasingly willing to pay for pet-related expenses. According to PAWZ data, “owners are providing pets with premium foods, luxury services, state-of-the-art health care, insurance policies and more.”
That all adds up. The American Pet Products Association reported that in 2019, Americans spent $95.7 billion on their pets. PYMNTS.com put that in perspective by pointing out, “if the pet industry was a country it would have the 60th highest GDP in the world.”
Embrace Pets and Profit With the PAWZ ETF
So, let’s finally turn to the PAWZ ETF itself. The fund is focused on letting investors tap into the profits of this vital and fast-growing sector. According to ProShares, “The pet care industry could reach $270 billion in global sales by 2025. It has grown steadily every year since 2001, even during the Great Recession.”
Chewy (NYSE:CHWY), the largest holding in the fund, showcases that surge in spending. Its revenue more than doubled between fiscal year 2017 and 2019, from $2.1 billion to $4.8 billion. Moreover, it looks like that growth will continue into 2020. Meanwhile, the company is not yet profitable, but earnings losses dropped from -$2.67 in 2017 to -63 cents in 2019. Finally, the most recent quarterly report boasted expanding margins and a 45% year-over-year (YOY) gain in net sales.
In that quarterly report, CEO Sumit Singh said, “our team has been hard at work to reformat our proprietary brands and overall assortment strategy by introducing compelling merchandise, improving discoverability, and delivering a tremendous value proposition for our customers.” That’s a vital focus, as pet spending increasingly moves online — especially pet food. About three-fourths of the growth in the pet food industry can be attributed to an online sales surge.
Of course, Chewy is probably the first stock every investor thinks of when it comes to pet stocks. What’s more, any investors who’ve heard of FreshPet (NASDAQ:FRPT) won’t be surprised to hear the pet food maker is the ETF’s second largest holding. But many others in the fund’s top 10 are less in the food-and-toys side of pet care. Instead, they cater to the part of pet ownership that many people don’t think about (or try not to) — taking care of sick pets.
Keeping the Fur Kids — And Your Portfolio — Healthy
The third-largest holding in the PAWZ ETF is Zoetis (NYSE:ZTS). Zoetis, which was spun out from Pfizer (NYSE:PFE) in 2013, focuses on pet healthcare. As the company notes on its website, “Zoetis delivers quality medicines, vaccines and diagnostic products, which are complemented by biodevices, genetic tests and precision livestock farming.”
Zoetis represents an important and necessary part of the pet care ecosystem for the ETF. Vet care spending in the U.S. in 2020 was expected to hit $16.62 billion before adding in the cost of over the counter medications. And, as people become even more willing to spend on their pets, we can expect that number to increase.
That in mind, Zoetis is also not the only pet healthcare play in the ETF. The company is joined in the top 10 holdings by names like Trupanion (NASDAQ:TRUP), which offers pet health insurance; Merck (NYSE:MRK), a drug manufacturer with an animal health division; Idexx Laboratories (NASDAQ:IDXX), which focuses on health diagnostics for pets; and Covetrus (NASDAQ:CVET), which helps support veterinary care.
In short, the PAWZ ETF is set up to cover all aspects of an increasingly large — and increasingly personal — pet care industry. If you believe in the growth of that sector, this is a great way to get in.
PAWZ has an expense ratio of 0.5%, or $50 per $10,000 invested annually.
On the date of publication, Jessica Loder did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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