Everybody loves a pet and more than 2/3rds of Americans actually own one. During the year of COVID Americans adopted an additional 10 million pets creating something that few thought was possible—a shortage in rescue dogs.
The COVID change in lifestyle will only accelerate the trend towards pet ownership as WFH (work from home) phenomenon is likely to radically alter the workplace in the next decade.
Demand of pet services is ironclad
As anyone who has ever cared for an animal knows, the connection with the pet often matches and sometimes surpasses that of a family member or friend. There are very few emotional bonds that surpass those between a pet owner and the animal and that means consumer spending preferences are virtually inelastic as owners will ensure the very best care for their four legged companions.
All of this has created a massive business sector with pet-related products and services expected to generate nearly a quarter of a trillion dollars in revenue globally. Indeed companies like Nestle have seen faster growth in their pet care products than in the consumer sector.
Better to bet on a basket rather than one individual stock
The pet care business is basically divided between pharmaceutical and diagnostic providers, pet food manufacturers and pet supply retailers and some sub specialty companies that offer pet specific services such as veterinary care insurance. It’s difficult to ascertain the standouts in the sector given the fragmentation. The investment thesis that the pet industry as a whole will continue to grow at a high single digit pace for the foreseeable future seems to be a much more certain proposition than a bet on any one particular stock.
The easiest way to participate in this trend is through the ProShares Pet Care (NYSE:PAWZ) which has seen very strong performance in the post COVID rebound essentially doubling in a year as investors responded positively to the pet ownership trend. The PAWZ ETF is certainly the simplest way to obtain exposure to the pet services industry but the ETF is very heavily skewed by market capitalization with top 5 names responsible for nearly 50% the ETF value while the other 23 stocks make up the rest.
Create your own pet themed investment basket
With most of the US brokers offering fractional shares it is easy to construct a DIY ETF basket of your own pet favorites on an equal weighted basis with perhaps just 10 to 11 names. The index may be more volatile but it may also be a more rewarding long term bet as it creates a more concentrated exposure to this theme while still providing a measure of diversification.
A possible index PET BET index could include:
Pharmaceutical producers
Pet Retailers
Pet Services Providers
Pet Food Makers
Ultimately the bet on the pet business is a bet on companionship in an ever increasingly fragmented world as rising global incomes allow for both the care and the joy of pet ownership amongst the growing global middle class. As such it appears one of the more clear investment trends of the future.