Funds to watch in 2023
As we start a new year, FundCalibre’s research team takes a look at the funds and trusts we think...
Yesterday, my husband told his primary school class about our latest foster dog. Bunty is a five-month-old puppy and their questions were not what I would have expected! “Do you get paid?” was the first and “Why do you do it?” the second. The answer to the first is “no” and it’s actually a question also asked by our friends who know just how expensive looking after a dog can be.
Today, there are more than 12.5 million dogs in the UK alone, according to Statistica. Add in cats, rabbits, fish and even lizards, and the number of pets to be cared for grows significantly. So it’s also a huge and growing market for investors.
“Saving one dog will not change the world, but surely for that one dog, the world will change forever.” – Karen Davison, author of ‘A Dog’s Guide to Humans’
The pandemic has significantly increased pet ownership, with more than three million people (myself included!) welcoming a new pet during lockdown, according to the BBC. In March 2021, Chris St John, manager of AXA Framlington UK Mid Cap fund, told us more about the pandemic acceleration of pet ownership on the Investing on the go podcast. He also told us about top holding Pets at Home, which continues to feature in the fund’s top ten* nearly one year later.
According to Pets at Home, the estimated UK pet care market is worth over £6 billion** and with greater humanisation of pets and an increasing desire for higher quality products, it’s no surprise that people living in the UK spend more than £3 billion a year on pet food alone each year.
It’s perhaps no surprise that Amazon is also a major player in the pet care market, especially after benefitting from the ‘stay at home’ orders in the UK. A holding* in T. Rowe Price Global Focused Growth Equity and Invesco Global Focus, Amazon has 21 distributors in the UK, providing more than £12 million of merchandise per annum, including the two new crates that were delivered to my house last week!
Another big cost associated with owning a pet is of course the vet bills. I know from personal experience that veterinary costs can be very high, but with more people (myself included) treating their animals like family members, there’s a growing need for excellent veterinary care, no matter the cost.
IDEXX Laboratories, a holding in Aberdeen Standard SICAV I – Global Mid-Cap Equity***, is a global leader in pet healthcare innovation. Fund co-manager Anjli Shah told me that this best-in-breed company (pun very much intended!) has a more than 50% share in veterinary diagnostics.
“IDEXX has a number of hard-to-replicate competitive advantages including its innovative capabilities – it spends more on R&D than its top competitors combined!” she said. “The market is large and growing due to structural trends including the “humanisation” of pets, favourable demographic trends (millennials are 50% of all pet owners and are willing to spend a larger percentage of their disposal income on their pets), and a growing standard of care trends. Our investment case centres on IDEXX sustaining its competitive advantages and gaining market share within a growing industry.”
One way of limiting unexpected veterinary costs, while still ensuring your pet’s health and well-being, is pet insurance. Although the uninsured population in the UK is high, the US is staggering. I had never even heard of pet insurance before moving to the UK, let alone had it for any of my animals growing up! Luke Ward, co-manager of Baillie Gifford Global Discovery, believes Trupanion, a US based pet insurance company, has a strong position for the US market as this trend of pet ownership continues to accelerate with younger generations looking towards pet ownership over starting a family or buying a home.
*Source: fund factsheet, 31 December 2021
**Source: Pets at Home, annual report and accounts 2021
***Source: FE fundinfo, top holdings as at 31 October 2021