First Pet Care ETF Debuts

Today, ProShares has rolled out an ETF that is the first of its kind and that seeks to capitalize on the vast amounts of money people spend on their pets. The ProShares Pet Care ETF (PAWZ) tracks a global index of companies primarily involved in providing pet-care-related products and services.

PAWZ comes with an expense ratio of 0.50% and lists on Cboe Global Markets, the parent company of ETF.com.

Investment Case
In its materials for the ETF, ProShare notes that seven in 10 U.S. households include a pet, more than currently include a child. That’s up from 56% 30 years ago. That growth isn’t exactly fast, but it is steady, with no signs of a reversal.

Further, 95% of pet owners consider their pets to be part of the family, with many spending money on things like toys, clothing and human-grade pet food. And it’s not just a U.S. trend, ProShares notes: The global pet-care industry is projected to grow from $132 billion as of 2016 to $203 billion in 2025.

“That’s coming not just from more pets being around, but also all the ways in which people are spending more on pets,” said Simeon Hyman, head of ProShares’ investment strategy group.  

“It’s estimated that pet owners will spend $18 billion on veterinary care in 2018. That of course has spurred a dramatic increase in pet insurance,” he added. “In 2017, we went over $1 billion in pet insurance premiums.”

Perhaps most intriguing, pet care remained a haven during the Great Recession and continued to expand, with most pet owners refusing to cut back on their pet spending, based on polls from the Associated Press. Overall, ProShares cites data that the pet-care industry has grown twice as much as the GDP since 2007.

“There’s a cohort aspect to it,” said Hyman, who notes that baby boomers are having more pets in the later part of their lives, while millennials tend to delay having children but end up having more pets.

Methodology

The fund’s underlying index primarily selects its components from eight different FactSet Revere Business Industry Classification System subindustries: pet food manufacturing, pet supplies manufacturing, pet and pet supply stores, veterinary pharmaceuticals, veterinary diagnostics, veterinary product distributors, veterinary services, and internet pet and supply retail.

Interestingly, some related products and services are not included in these designations, the prospectus notes. The methodology has the flexibility to include companies such as those that provide pet insurance, despite the fact they don’t have their own subindustry.

Eligible companies must meet size and liquidity thresholds, among other requirements. Ultimately, the index will include at least 21 components, the document says.

Component companies are sorted into two tiers. Tier 1 involves companies that derive at least half of their revenues from pet-care products and services and given a weight of 82.5% in the index.

Companies that derive at least $1 billion in revenue from pet-care products and services but less than 50% of revenue from pet care are classified in Tier 2, which is assigned a weight of 17.5% of the index.

Components are weighted by market capitalization within each tier, but subject to caps of 10% in Tier 1 and 4.5% in Tier 2, according to the prospectus.

(See ProShares: New ETF Unleashes Pet Care Market)

Contact Heather Bell at [email protected]