July 2020
Pet Care Spending Has Historically Shown Recession-Resistance. What Are the Impacts of the Pandemic so Far?


Summary
  • Increasing pet ownership and humanization trends have led to decades of steady growth in the pet care industry.
  • Historically, the pet care industry has shown resilience during recessions. The COVID-19 pandemic will be a unique test for the industry.
  • The critical role of companion animals in pet owners’ lives is on display during social distancing, as adoption and foster applications reach record highs.
  • A segment of the pet care industry, tracked by the FactSet Pet Care Index, has outperformed the S&P 500 by more than 14% year-to-date through June 30th.


Pet Care: Driven by Demographics and Consumer Trends

Pets are part of the family and—due to strong industry tailwinds like growing pet ownership and increased spending—also a potentially compelling opportunity for investors.

What’s Driven the Growth of Pet Ownership?


According to the American Pet Products Association (APPA), 67% of U.S. households have a pet, up from 56% in 1988. Similar trends are at work globally, with the number of pet owners increasing in both developed and emerging nations.


In the U.S. 37 million millennials own a pet, reportedly welcoming a furry friend into their family prior to, or even in place of, having children.


Domestically between 2008 and 2018, the pet adoption rate of baby boomers grew 5%, while households with an income of $100K or more saw a 9% increase in adoption rates over the same time frame.

How Are Pet Owners Spending?


The humanization of pets—where they are treated as part of the family—has driven purchases of premium pet food, specialty health services, toys, treats and even outfits.


From 2013-2018, America's pet spending increased 50% while annual income only increased by 23%.


Global pet industry sales are forecast to grow from $190 billion in 2018 to $270 billion by 2025.

These durable trends, detailed further in our PAWZ Investment Case, may indicate a long-term opportunity, but what impact has COVID-19 had on the pet care industry so far?

Stay-at-home orders and social distancing guidelines have caused a form of isolation that most of the world has never experienced. While the lockdowns have disrupted everyday life and economic activity, there are indications that the trends supporting the pet care industry may, in fact, be reinforced during these difficult times.

Our pets have been one of the few bright spots during the pandemic. Not only are people spending more time with their pets, but early signs indicate that more pets are joining households. Animal shelters have reported significant increases in both foster and adoption applications, leaving some shelters vacant for the first time.

The pandemic has also highlighted the critical role of pets in their owners’ lives. When asked, 72% of pet owners agreed that spending time with their pet was helping to reduce their stress and increase their sense of well-being during COVID-19, and 60% of owners said that the extra time helped them feel more bonded with their pet.

Click to ExpandPet Owner Survey

Recessionary headwinds are certainly affecting many consumers. However, when asked if the current economy had influenced their spending on their pet in the previous month, only 15% of pet owners reported that they had spent less. Twenty-one percent of pet owners said they had spent more.

Click to ExpandPet Spending Current Economy

As part of this, just like many other wellness services, veterinary visits may have been deferred during the pandemic, with 19% of surveyed pet owners saying they have changed their use of veterinarian services during COVID-19. However, it’s expected that demand for veterinary services may have become pent-up during office closures, and appointments will be rescheduled as businesses are permitted to reopen.

Pet Care Spending Has Proven Resilient in the Past

The pandemic has sparked the first recession since the financial crisis, and very few sectors and industries have been insulated from the pain. However, while the impacts of COVID-19 are still unfolding—and different pet care businesses may experience different effects—as a whole, the pet care industry has shown signs of resilience.

This strength has been on display in the past. Looking at pet care spending during previous downturns since 1970, the amount of money spent on pets increased regardless of recessionary or expansionary periods. Perhaps similar to how parents feel about their children, our pets are one of the last things we are willing to look to when cutting costs.

Click to Expand Pet Care Spending Recessions


How is Pet Care Performing During the Pandemic?

We are still in the early stages of the pandemic, but the FactSet Pet Care Index provides a snapshot of how some companies within the pet care industry are holding up. The Index is designed to track the performance of companies that stand to benefit from interest in or resources spent on pet ownership. Year-to-date, the Pet Care Index has earned a positive return of 11.35% while the S&P 500 was down 3.09%.

Click to Expand Pet Care vs SP 500

Source: Bloomberg, 06/30/20. PAWZ standardized performance as of 06/30/20: NAV 11.16% YTD, 16.02% 1-year, 13.93% since inception (11/5/18). Market Price 11.46% YTD, 16.02% 1-year, 14.08% since inception (11/5/18). Expense ratio 0.50%. Performance quoted represents past performance and does not guarantee future results. Investment return and principal value will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained at ProShares.com. Index returns are for illustrative purposes only and do not represent fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged, and one cannot invest directly in an index.



What's Next?

Take a closer look at the pet care industry's resilience during the pandemic.

In this piece we asserted that while COVID-19 is a test for pet care businesses, the long-term trends may support a variety of companies poised to potentially benefit from industry growth. In our next piece, we'll dig further into how these companies have fared and where potential growth opportunities may be found.

   Read More   




How Investors Can Invest in Pet Care

Investors looking for industries that have shown resilience during recessionary periods may want to consider ProShares Pet Care ETF (PAWZ), which tracks the FactSet Pet Care Index.

PAWZ

The first ETF focused on the pet care industry and gives investors the opportunity to gain broad exposure to public companies in the global pet care industry—companies that stand to potentially benefit from the proliferation of pet ownership and the emerging trends affecting how we care for our pets.


Sources: American Pet Products Association 2019-2020 survey; Global Market Insights, 2019; Packaged Facts, 2019; Healthpocket 2019; APPA COVID-19 Pulse Study Volume 1; Pet Food Industry, 2019; The Economist, 2019.

This is not intended to be investment advice.

Any forward-looking statements herein are based on expectations of ProShare Advisors LLC at this time. ProShare Advisors LLC undertakes no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Investing is currently subject to additional risks and uncertainties related to COVID-19, including general economic, market and business conditions; changes in laws or regulations or other actions made by governmental authorities or regulatory bodies; and world economic and political developments.

There is no guarantee any ProShares ETF will achieve its investment objective.

Investing involves risk, including the possible loss of principal. This ProShares ETF is non-diversified and entails certain risks, including imperfect benchmark correlation and market price variance, that may decrease performance. Please see their summary and full prospectuses for a more complete description of risks.

The fund is subject to the risks faced by companies in the pet care industry. Although the pet care industry has historically seen steady growth and has been resilient to economic downturns, these trends may not continue or may reverse. Consumer tastes and preferences are difficult to forecast. Changing consumer preferences could have a negative impact on the revenue streams of companies in the pet care industry. Many companies in the pet care industry are small, independent producers and retailers.

Investments in smaller companies typically exhibit higher volatility. Smaller company stocks also may trade at greater spreads or lower trading volumes, and may be less liquid than stocks of larger companies.

The fund concentrates its investments in certain sectors. Narrowly focused investments typically exhibit higher volatility.

The "FactSet Pet Care Index" and "FactSet" are trademarks of FactSet Research Systems Inc. and have been licensed for use by ProShares. ProShares have not been passed on by these entities or their affiliates as to their legality or suitability. ProShares based on the FactSet Pet Care Index are not sponsored, endorsed, sold, or promoted by FactSet Research Systems Inc., and it makes no representation regarding the advisability of investing in ProShares. SOLACTIVE AG AND ITS AFFILIATES MAKE NO WARRANTIES, EXPRESS OR IMPLIED, AND BEAR NO LIABILITY WITH RESPECT TO THE INDEXES, PROSHARES, OR THE FUNDS. FactSet Research Systems Inc. does not guarantee the accuracy and/or the completeness of the FactSet Pet Care Index or any data included therein, and FactSet Research Systems Inc. shall have no liability for any errors, omissions, or interruptions therein.

Carefully consider the investment objectives, risks, charges and expenses of ProShares before investing. This and other information can be found in their summary and full prospectuses. Read them carefully before investing.

ProShares are distributed by SEI Investments Distribution Co., which is not affiliated with the funds' advisor or sponsor.

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