The thematic exchange traded funds landscape continues expanding both in population and, more importantly, when it comes to assets under management.
That's a testament to investor demand and at this point in the evolution of thematic exchange traded funds, it's not a stretch to say there's not much ETF issuers won't try. Another constant in the world of thematic ETFs is that these funds are constantly pushing the envelope and drawing plenty of criticism in the process.
Look, there are always going to be boo birds and naysayers, particularly when a new ETFs offers up a thesis that appears to be wacky. That scenario is further amplified by the fact that many end users, including advisors, simply don't want anything but pure beta products from the top four or five issuers.
I'm old enough to remember when the First Trust Cloud Computing ETF (NASDAQ:SKYY) came to market just over a decade ago. There were accompanying critiques, plenty of which were spotted in the mainstream financial press. Today, SKYY is a $6.62 billion fund – undoubtedly a success story.
Point is, it's not unreasonable to say the ProShares Pet Care ETF (CBOE:PAWZ) appears to push the limits of what ETF users are willing to deal in thematic terms. In reality, however, this is a credible idea with $323.54 million in assets under management, as of the end of June, just a couple months shy of its third birthday.
PAWZ Is Pertinent
As a dog owner, I suspect the remaining PAWZ doubters aren't pet parents, meaning they aren't first-hand knowledgeable of the financial commitments pet ownership entails. Of course, good pet parents don't really complain about these expenditures. The return on investment – unconditional love – is well worth it. Of course, pet spending has real world investment implications.
“The pet care industry has had strong historical performance, and investing in it could present a significant opportunity. As measured by the FactSet Pet Care Index, the pet care industry has outperformed the S&P 500 by a cumulative 48.1% since the end of 2019,” says ProShares analyst Daniel Bush.
But wait. There's more. PAWZ is essentially sector agnostic, but the bulk of its holdings can be considered healthcare stocks or retailers. Over the past two years, PAWZ is up more than 97% while the S&P 500 Consumer Discretionary and Health Care indexes are each up about 50%. More of the same could be on the way.
“Looking forward, the global pet care industry is projected to grow from $232 billion in 2020 to $350 billion in 2027,” adds Bush.
In the case of PAWZ, growth isn't coming by way of dubious, fly-by-night companies. The ETF's 31 companies have an average market capitalization of $30.28 billion as of the end of the second quarter. Home to blue chips such as Merck (NYSE:MRK) and General Mills (NYSE:GIS), PAWZ has avenues for allaying skittish clients' concerns.
Macro Factors Favor PAWZ
Indeed, there are macro factors relevant to PAWZ. Even before the coronavirus was a fact of everyday life, pet ownership was stout in the U.S., but the pandemic really accelerated that trend.
As Bush notes, some naysayers are apt to bet that trend will revert. However, that's merely speculation. Even if it does, all the dogs and cats adopted during the pandemic still need veterinary care and food and treats provided by PAWZ components such as Chewy (NYSE:CHWY).
“Recent data from veterinary industry tracker VetSuccess indicates that year-over-year trailing 12-month revenue for veterinary practices in the U.S. was up 13.1% as of July 25, 2021,” adds Bush.
It's just one example, but for the dog owners reading this, it's likely that in recent months, you've encountered some scheduling issues for procedures such as teeth cleaning and grooming. Annoying as that may be and it is, those are practical, tangible signs PAWZ has legitimate opportunities for long-term growth ahead.
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