Pet ownership, on the rise prior to the pandemic, has accelerated. However, some new pet owners have found themselves surprised at the expense of owning a furry friend. A September 2020 LendingTree survey found that 62% of pet owners reported being shocked by the cost of owning a pet,1 and while food, toys, and treats may be the first purchases made, medications, vaccinations and pet insurance can make up the majority of underlying expenses.
For new pet owners, that first trip to the vet is often just the beginning of a long-standing and trusting relationship. A 2021 Morgan Stanley report found that approximately 60% of pet owners in the U.S. cite their vet as the most important source of information for pet care, with vets proving to directly influence the key shopping behaviors of pet owners.2
In the U.S., spending on animal health reached nearly $40 billion in 2019, and research indicates it may be a key area for growth within the pet care industry.3 This may not just be because of an increase in pet ownership. Indeed, while pet ownership growth tripled in the U.S. amidst the pandemic,4 we are also seeing our pets live longer,5 largely due to innovations made in animal diagnostics and therapeutics.
The predominant industries within the pet health segment include Veterinary Pharmaceuticals, Veterinary Diagnostics and Veterinary Product Distributors. These industries could well be the next catalyst for growth within the broader pet care industry-driven by an increase in pet ownership, advancements in animal healthcare, and owners increasing the care and attention they devote to their pets.
Animal diagnostics companies, such as IDEXX Laboratories, are helping to support pet longevity through preventive testing. IDEXX attributed the majority of its fourth-quarter revenue growth, up 19% year over year, to companion animal diagnostics recurring revenue. IDEXX is not alone, with other large players in the space forecasted to see strong earnings growth over the next three to five years, according to FactSet estimates.
|Dechra Pharmaceuticals plc.||9%|
|IDEXX Laboratories, Inc.||16%|
|Veterinary Product Distributors|
Source: FactSet as of 3/31/21
Since the end of 2019 through the end of the first quarter of 2021, performance of pet care stocks tracked by the FactSet Pet Care Index rallied 64.24%--an impressive feat, having outperformed the S&P 500 by 38.53%. It may come as a surprise, however, that while pet health makes up 52% of the FactSet Pet Care Index, the segment has accounted for just one-third of the index’s performance over the same time period.6
Source: Bloomberg, PAWZ standardized performance as of 03/31/2021: NAV: 0.97% YTD, 85.05% 1-year, 28.27% since inception (11/5/2018). Market Price: 0.98% YTD, 86.40% 1-year, 28.35% since inception (11/5/2018). Expense ratio is 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.
From the end of 2019 through to the first quarter of 2021, Pet Food and Pet Supplies and Stores were the performance leaders as investors homed in on the boost to their bottom lines seen during the pandemic. Chewy, the “Amazon of the pet care industry”, recently released results indicating that the e-commerce company grew net sales 51% year-over year in the fourth quarter of 2020 and managed to post its first quarterly profit a year earlier than forecasted.7
In addition, larger conglomerates continued to reap the benefits from expansion of their pet care lines. Nestle, with its Purina Petcare line, is the U.S. leader in pet food and number two globally.8 Company filings indicate that pet care is Nestle’s second largest product segment. Pet-focused business lines appear to be benefitting from consumers’ unwillingness to reduce spending on their pets when personal disposable incomes decline, with Morgan Stanley reporting that “pet spending as a whole is almost perfectly elastic.”9
As the industry continues to grow, it’s attracting more attention from Wall Street, and investment research has expanded. Morgan Stanley recently published a 42-page report titled “Welcome to the Petriarchy,” and Bloomberg Intelligence published a 2021 outlook for North America Animal Health. According to a 2021 Global Market Insights report, U.S. pet care revenue was approximately $100 billion in 2020 and accounted for 43% of industry spend. Globally, the pet care market was valued at $232 billion in 2020, with forecasts indicating it may grow to $350 billion by 2027.10
1LendingTree commissioned Qualtrics to conduct an online survey of 2,011 Americans, which included 1,378 pet owners. The survey was fielded September 4-11, 2020.
2Morgan Stanley, “Welcome to the Petriarchy” March, 2021
3Morgan Stanley, “Welcome to the Petriarchy” March, 2021
4Morgan Stanley, “Welcome to the Petriarchy” March, 2021
5Bloomberg Intelligence, “North America Animal Health 2021 Outlook.”
6Source: ProShares, FactSet. 12/31/2019-3/31/21.
7Bloomberg estimates indicated first quarterly profit would be in the fourth quarter of 2022.
8Morgan Stanley, “Welcome to the Petriarchy” March 2021
9Morgan Stanley, “Welcome to the Petriarchy” March 2021
10Global Market Insights, https://www.gminsights.com/industry-analysis/pet-care-market
PAWZ is the first ETF that allows investors to capitalize on people’s passions for their pets. PAWZ 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.
As of 3/31/2021, PAWZ included allocations of IDEXX Laboratories, Inc. at 9.80%, Zoetis, Inc. at 10.29%, Dechra Pharmaceuticals plc. at 7.62%, Heska Corp. at 2.95%, Covetrus, Inc. at 4.00%, PetIQ Inc at 1.64%, Chewy at 9.87%, Nestle at 4.65%. Holdings are subject to change.
This is not intended to be investment advice. There is no guarantee forecasts will be met. Indexes are unmanaged and one cannot invest in an index.
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. THIS ENTITY AND ITS AFFILIATES MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO PROSHARES. 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.
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