Brave New World - Edition 9

Petcare Industry: A Long –Tail Trend

• ~67% of US households have at least 1 pet, marking the highest level of pet ownership on record. In fact, pets have become staple in many U.S. households to the point that 1 in 10 pet owners are actually delaying having children to focus on their pets.(Source: ArmStrongEconomics.com)
• The average owner spends $1,380 annually per dog and $908 per cat. That amount could quickly spike if a pet falls ill or has special needs. Grooming, training, premium foods, advanced healthcare, insurance policies and boarding costs would also push this number higher for middle and upper-income owners. (Source: ArmStrongEconomics.com)
• According to Euromonitor International, pet-care market has grown by over 66% in the last decade, while the global economy has expanded by just 43%.

• Internet searches related to pet adoption for both cats and dogs increased by 250% over the first year of the pandemic.
• Factors like stay at home, higher disposable income & nuclear families are driving adoption of pets & thereby the Petcare market.

After Energy its Water now threating Supply chain disruption

• After COVID-19 disruptions, congested ports, etc.; rising Water scarcity in China can be the next one that pushes U.S. supply chains over the edge.
• With nearly 20% of global population, China has about 7% of world’s freshwater. According to a 2017 analysis in Global Risk Insights, nearly half of China’s GDP is generated “in regions that have a similar water resource per capita as the Middle East.”
• Groundwater depletion has been so significant in the areas around Beijing that parts of the city are falling into the earth by more than 14 centimeters a year.
• These water shortages are showing up in power generation, leaving hydroelectric & coal power producers struggling. Authorities have responded by restricting industrial energy consumption, resulting in major disruptions to China’s manufacturers.
• This in turn disrupts U.S. supply chains as it imports 40% of domestic clothing sales (~70% of Walmart’s store merchandise), key industrial products like steel, aluminum, polysilicon used in solar panels etc. from China; leading to rising product prices.

Second Order effects of ESG

Issues leading to rising agricultural prices -

• Countries like U.S. & Netherlands focusing on taking farmland out of cultivation to reduce agriculture’s environmental impact.
• Prices for major fertilizer products have increased over 50% in the last year. High prices lead to projections of record-high production costs in 2022.

China: With positive real rates Debt servicing gets challenging

Positive Real Interest Rate –

• For decades, active managers have claimed that in boring markets, don’t expect them to outperform.  If there ever was a year active management should have outperformed passive indexed strategies, 2020 (most turbulent times since the great recession) and the first half of 2021 should have been it.

Team

Management

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