Market Overview

Fundamentals Favor This Unique Industry ETF

Fundamentals Favor This Unique Industry ETF

The ProShares Pet Care ETF (CBOE:PAWZ) has been generating more interest in recent weeks. Sure, PAWZ was the first exchange traded fund to add shares of Chewy, Inc. (NYSE:CHWY) and did so for a decent size. More importantly, the fund is up almost 18% this year.

What Happened

To a skeptical investor, PAWZ may appear to be just another niche ETF with a narrow investment focus, but the reality is PAWZ is underpinned by a slew of favorable fundamental factors.

“Today, roughly 68% of U.S. households have pets, up from 56% in 1988, according to the American Pet Products Association (APPA),” notes FactSet, the index provider for PAWZ. “In fact, more households have pets than have children.”

PAWZ tracks the FactSet Pet Care Index and holds 24 stocks with an average market value of almost $21 billion.

Why It's Important

The bulk of the components in PAWZ would be considered healthcare or retail stocks. In either case, the pet care fund is easily outperforming basic healthcare and old guard retail ETFs this year. There is a demographic twist here that benefits investors.

“Baby boomers, the largest generation in history, are entering a new phase of life as empty nesters and retirees,” according to FactSet. “As this occurs, they're becoming pet owners in greater numbers. A decade ago, only 34% of people over 70 had pets. But as boomers began to cross into their 70s, the percentage quickly jumped to 40%.”

Of course, millennials are part of the equation, too.

“Millennials, who will become our nation’s largest generation, have also embraced pet ownership. Many millennials are becoming pet owners before, or even instead of, having children,” said the index provider. “And for those who don’t currently own a pet, 43% say they want one in the future. In addition, when millennials take major steps, like purchasing homes, their pets’ needs are quite often a driving force behind their choices.”

What's Next

Demographic trends and the increasing willingness of pet owners to spend and spend up on their furry friends are legitimate long-term drivers for PAWZ.

“Pet owners are building an appetite for premium and even luxury pet products. Higher-quality pet food is becoming the norm, with sales of super-premium brands increasing over 9% as sales of value brands decreased 5.7% (2012-2015),” notes FactSet. “Owners are also indulging pets with non-essentials, purchasing toys or accessories on impulse and spending on pet furniture and clothing—with some even buying designer apparel.”

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