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Barking up the right tree: PMs playing the pet investment boom

LONG READ: With lockdown leading to increasing numbers of animal lovers, which stock, sectors and strategies have soared during the pandemic?

Barking up the right tree: PMs playing the pet investment boom

For a brief period during lockdown in the UK, a picture was doing the rounds of a dog hiding on top of a fridge, with the caption referencing that the dog couldn’t bear to have another walk as every member of the household sought to find an excuse to leave the house.

While this meme was obviously a joke, the regard for pets has boomed as remote workers and families capitalised on the abundance of time at home to add a new companion into the mix.

This growth was extreme to the point that major newspapers to focus on the need for proper pet care and long-term planning. It also highlighted how first-time pet buyers were being cheated, as it was estimated that UK residents lost around £282,000 (€311,000) through scams in March and April alone.

Citywire AAA-rated Jack Neele and Richard Speetjens of Robeco argued that the pets industry has become recession-proof, as people won’t stop spending on their animals even if their own pay situation is compromised.

‘The global market is currently estimated to be worth over $190bn, and researchers expect it to grow by an average of close to 5% per year between 2019 and 2025,’ the duo said. 

So, who are the winners? Let’s take a closer look at some of the stocks. For example, Florida-based Chewy, which produces pet supplies, saw its share price explode over the course of 2020. According to Morningstar data, shares in the company rose 66% between January 1 and June 18.

This would have been music to the ears of several fund managers, with several Ucits-compliant strategies having long-held positions in Chewy, including Neele and Speetjens, who championed its ‘autoship’ feature which created a subscription-like model for repeat orders.

Others with sizeable positions in Chewy include the Fideuram Fund Equity USA Advantage fund, which had 2.05% exposure at the end of May, as well as the Interfund Equity USA Advantage and Legg Mason ClearBridge Global Growth funds, with 2.04% and 1.66% respectively.

Meanwhile, the Schroders ISF Changing Lifestyles fund, which was launched for Citywire AA-rated Charles Somers in January 2020, had a 2.15% position in Chewy at the end of May, again according to Morningstar data.

Speaking to Citywire Selector, Somers said: ‘Pets are explicitly a part of the fund’s investment universe under the “wellbeing” sub-theme.

‘The ideas here are that one lifestyle trend is increased humanisation of pets – “pet parents”, increased adoption of natural/fresh foods, more concern about overall pet healthcare etc.

‘Also, the contribution that pets can make to mental wellbeing – eg the sharp increase in pet adoptions during lockdown.’

Suppliers linked to the pet industry have performed strongly, as zooplus, a German retailer of pet supplies and food, is also up 64% over the same period as Chewy. PetMed Express, a US-based online pet pharmacy, was also up 51%.

Healthy and happy

This latter stock highlights how the healthcare elements have also proven an attractive area of investment. This was a sub-sector specifically highlighted by Allianz Global Investors when it launched its Pet and Animal Wellbeing fund at the start of 2019.

Speaking to Citywire Selector in March of this year, lead manager Andreas Fruschki, who is A-rated, favoured healthcare investments in his portfolio. This has led to the likes of Zoetis, the world’s leading pet health company, featuring prominently in the fund.

Zoetis is another feature of Somers’ fund, as well. ‘The fund’s other exposure apart from Chewy is Zoetis (1.9% position), the leading animal pharmaceutical company, which earns half its revenues and the majority of its growth in its “companion animal” division catering to pets.’

Looking at the pet health specifically, Johan Utterman, senior portfolio manager and thematic specialist at Swiss group Lombard Odier Investment Managers, is among those who believe veterinary clinics can be off the radar for investors.

‘The humanisation of pets has proven an attractive investment trend,’ he told Citywire Selector. ‘Investments from organic pet food and veterinary clinics to diagnostic instruments and heartworm, flea and tick prevention have generated strong returns. 

‘Pure play bets like Idexx Laboratories and Zoetis have performed well. Other stocks including VCA Antech and Blue Buffalo have been acquired. 

‘Even more diversified companies like Nestlé have benefited, with Purina PetCare a core growth driver. This is because many owners spend more and more money on their pets, considering them very much part of the family.’

Companion call

Utterman stressed the link between lockdown and pet ownership, as people sought company and now there is much pent-up demand from those still looking at become pet owners.

‘The Covid-19 pandemic has boosted the demand for pets. During the lockdown, many felt isolated and would have welcomed the companionship of a pet.

‘Try contacting a breeder and you will likely find that this year’s litters are spoken for. The fact that travel has become more difficult or dangerous also makes pet ownership easier and possibly more affordable, as the costs are offset by reduced spending elsewhere.  

‘The pet investment trend is clearly benefiting from changing consumer behaviour and is here to stay. In addition, walking the dog is an easy way to improve your own health as well.’

Not everyone is playing the secular theme though but looking at the space more tactically. Speaking to Citywire Selector, Julien Bernier, chief investment officer of Chahine Capital, said his decision was made for stock-specific reasons and not to play the pet theme, although it has proven timely.

A-rated Bernier said: ‘We are holding PetMed Express in Digital Stars US Equities fund, which we have done since November 2019, but also Pets at Home in our Digital Stars Europe fund, which we have had since October 2019.

‘Zooplus was added more recently in mid-May into the Digital Stars Eurozone fund. We are a quant momentum player; the investment was not the result of analysis that, due to Covid, people are turning more to their private sphere where pets can have a big role, but only [because] we were detecting very positive trends at price and earnings estimates level.’

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