Summary
Do you know a dog which lives outside in his dog house most of his life? Instead, “Snoopy” is more likely to yawn out of a king-size bed. This reflects a trend that can provide interesting opportunities for investors.
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Key takeaways
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If the pet is healthy, the human is happy
Are you looking for Snoopy in his dog house? Take a look in the king-size bed!
Whether since the taming of the very first wolf, we do not know, but for millennia there has been an unbreakable bond between human and pet.
Today, this bond is stronger than ever.
Just recall one of our cartoon favourites, Snoopy, who debuted in the Peanuts comic strip in 1950. The laidback character often takes time to rest in his red wooden doghouse – a rare sight today. Yet, in the 1950s and even more recently, domestic animals were kept exclusively in backyards. It was not until the 1980s that the trend of pets in the home took off.
Who now knows a dog that lives outside in a doghouse? Today, we have gone a step further and it is more likely Snoopy is in a king-sized bed than a doghouse. Now half of all pet owners let their pet sleep in the bed!1
Closer bonding means an increase in pet spending. Many devoted pet parents see their dogs or cats as nothing less than family members and don’t mind going the extra mile to keep them healthy – this can result in all kinds of expensive veterinary care that can easily run into the thousands or tens of thousands of dollars.2
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The US pet healthcare segment in 2017 was valued at USD 32 billion , accounting for 46% of total pet spending.
Veterinary treatment is a broad spectrum ranging from vaccines and parasiticides to antibiotics, surgery and even innovative e-solutions to cure diabetes. There is now even a variety of services pertaining to the ageing pet population including in-home hospice services and out-of-home senior care.
Behind the above-GDP growth rate of the pet healthcare industry is a rise in demand alongside supportive industry developments.
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Simultaneous with the rise in demand for pet healthcare products and services are a number of important breakthroughs in scientific innovation that aim to meet the demand. Techno-scientific advancement in pet therapeutics enables a greater availability of pet treatments – like laser therapy, used during dental extractions and soft tissue surgeries.
Pet healthcare suppliers are generously investing in R&D in new technology like surgical 3D printing – for visualising a condition prior to surgical procedure. Enhanced treatments are now being made available like digital x-rays, which allow for faster images with less radiation exposure.
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Allianz Global Investors has conducted various pieces of proprietary research on the topic of pet insurance through Grassroots® Research3, our investigative market research division. With the escalating medical expenses and extended lifespan of pets, pet owners are gradually turning to pet insurance to alleviate the cost pressure.
The concept is growing popular in some markets but it has huge growth potential, with only 1%4 of pets in the US insured. The pet insurance sector is ripe for expansion as there are increasing marketing efforts and education on the topic. The US pet insurance segment, worth slightly more than USD 1 billion in 2017, is forecast to smash the USD 2 billion barrier by 2022.5,6
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The animal health industry appears structurally even more attractive than human pharmaceuticals, given shorter and less expensive R&D cycles and limited government intervention.
While competition is rife in the human healthcare industry, it is less so in pet healthcare. A relatively shorter R&D cycle and lower required R&D costs also contribute to a lower risk investment. Contrary to the human pharma industry, animal healthcare products are typically cash-pay businesses and are not subject to government or third-party influence.
Therefore, the pet healthcare industry has better margins than the human pharma industry. Pet and animal health companies operate on gross margins approaching 60%. This compares to the MSCI World Healthcare Index which on average generates 37% gross margins.7,8
Conclusion
When Snoopy’s feet first pattered across the comic strips of American newspapers in 1950, few would have imagined pets anywhere but outside the house – in a doghouse or backyard. The trend of keeping pets in the home has been caused by a rapid social change, in just a few decades, of viewing pets increasingly as family members. Today it is more likely Snoopy is in a king-sized bed than a doghouse.
While the pet industry as a whole is experiencing a growth trajectory, we believe the pet healthcare segment deserves special attention from investors.
The result is an increasing humanization that has turned pets into family members. Consequently, it is more likely today that Snoopy is lying in a king-size bed than in a doghouse. While the pet industry as a whole is growing, we believe that the pet health segment deserves special attention from investors.6,9
Do not be surprised with the advent of total hip replacement surgery for pets!
Fund: Allianz Pet and Animal Wellbeing
1) “Should we let sleeping dogs lie… with us?”, Kirrilly Thompson and Bradley Smith
2) In an extreme case, a three-year-old female French Bulldog with a spinal disease would rack up a medical bill close to USD 45,000. Source: The State of Pet Healthcare 2019: Guide to pet health, how much Americans spend, common diseases, treatment tips, financial aid options and more, Pet Life Today.
3) Grassroots® Research is a division of Allianz Global Investors that commissions investigative market research for asset-management professionals. Research data used to generate Grassroots® Research reports are received from independent, third-party contractors who supply research that, subject to applicable laws and regulations, may be paid for by commissions generated by trades executed on behalf of clients.
4) The emerging U.S. pet insurance market, Houlihan Lokey.
5) U.S. pet insurance market to double by 2022 lead by these 5 key facts, Packaged Facts.
6) The statements contained herein may include statements of future expectations and other forward-looking statements that are based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. We assume no obligation to update any forward-looking statement.
7) JP Morgan, October 2018
8) Past performance is not indicative of future results.
9) Performance of the strategy is not guaranteed and losses remain possible.
Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors might not get back the full amount invested. Allianz Pet and Animal Wellbeing is a sub-fund of Allianz Global Investors Fund SICAV, an open-ended investment company with variable share capital organised under the laws of Luxembourg. The value of the units/shares which belong to the Unit/Share Classes of the Sub-Fund that are not denominated in the base currency may be subject to an increased volatility. The volatility of other Unit/Share Classes may be different and possibly higher. Past performance is not a reliable indicator of future results. Investment funds may not be available for sale in all jurisdictions or to certain categories of investors. This communication has not been prepared in accordance with legal requirements designed to ensure the impartiality of investment (strategy) recommendations and is not subject to any prohibition on dealing before publication of such recommendations.
For investors in Europe (excluding Switzerland)
For a free copy of the sales prospectus, incorporation documents, daily fund prices, key investor information, latest annual and semi-annual financial reports, contact the issuer at the address indicated below or www.allianzgi-regulatory.eu. Austrian investors may also contact the Austrian information agent Allianz Investmentbank AG, Hietzinger Kai 101-105, A-1130 Vienna. Please read these documents, which are solely binding, carefully before investing. This is a marketing communication issued by Allianz Global Investors GmbH, www.allianzgi.com, an investment company with limited liability, incorporated in Germany, with its registered office at Bockenheimer Landstrasse 42-44, 60323 Frankfurt/M, registered with the local court Frankfurt/M under HRB 9340, authorised by Bundesanstalt für Finanzdienstleistungsaufsicht (www.bafin.de). Allianz Global Investors GmbH has established branches in the United Kingdom, France, Italy, Spain, Luxembourg and the Netherlands. Contact details and information on the local regulation are available here (www.allianzgi.com/Info).
For investors in Switzerland
For a free copy of the sales prospectus, incorporation documents, daily fund prices, key investor information, latest annual and semi-annual financial reports, contact the Swiss funds’ representative and paying agent BNP Paribas Securities Services, Paris, Zurich branch, Selnaustrasse 16, CH-8002 Zürich or the issuer either electronically or by mail at the given address. Please read these documents, which are solely binding, carefully before investing. This is a marketing communication issued by Allianz Global Investors (Schweiz) AG, a 100% subsidiary of Allianz Global Investors GmbH, licensed by FINMA (www.finma.ch) for distribution and by OAKBV (Oberaufsichtskommission berufliche Vorsorge) for asset management related to occupational pensions.
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November 2019
