Market Overview

Don't Bark At The Pet Care ETF

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Don't Bark At The Pet Care ETF

In what was a nice coincidence, the ProShares Pet Care ETF (CBOE: PAWZ) gained almost 1.5% on Monday, which also happened to be International Dog Day.

What Happened

Pet holidays are nice. After all, they give pet owners added reason to use the cameras on their smartphones and to post those pictures to various social media forums. As a dog owner, I like that. As an investor, pet holidays don't do much for me, but there are solid fundamentals underpinning the long-term story behind PAWZ.

"Almost 70% of U.S. households have pets, up from 50% a generation ago," according to ProShares. "Pet care spending in the U.S. has seen twice the percentage growth of GDP since 2007, and kept growing through the Great Recession."

Why It's Important

PAWZ targets the FactSet Pet Care Index and provides exposure to multiple areas of the pet care arena, including health care and retailers, both of which feature robust long-term growth prospects. While health care will always be part of the equation when it comes to owning a pet, the discretionary side of the industry could be a pivotal long-term driver.

“Eighty percent of pet owners care for their pets like children, 79% believe their pets should eat the same quality food they do and nearly half have purchased clothing or fashion accessories for their pet,” said ProShares.

The trajectory of industry sales is stellar and would be the envy of most traditional, human-based retailers.

“Pet care industry sales, which stood at $132 billion globally in 2016, are projected to grow to $203 billion by 2025,” notes ProShares.

What's Next

Up nearly 10% year to date, PAWZ is outperforming traditional healthcare and health care providers exchange traded funds. Yes, insurance is a big part of the PAWZ thesis.

"It is estimated that more than $18 billion was spent on veterinary care in 2018, giving rise to an increase in pet insurance policies. In North America, private health insurance was purchased for more than two million animals in 2017, generating over $1 billion in premiums,” according to ProShares.

Add to that, the broader pet care segment is highly profitable and often delivers higher margins for the participating companies than are found in equivalent human-dominated sectors. So while PAWZ commands a premium valuation, as do many of its holdings, the high multiples may be warranted.

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