Gabelli Pet Parents TM

Transcription

1 Gabelli Pet Parents TM Shareholder Commentary June 30, 2018 Daniel M. Miller Portfolio Manager Dear Shareholders, For the period ended June 30, 2018, the net asset value ( NAV ) per share of Gabelli Pet Parents TM ( PETZC ) increased 0.6% compared with a decrease of 1.6% for the Standard & Poor s (S&P) 500 Index. See page 2 for additional performance information. We are pleased to have launched the Gabelli Pet Parents on June 19, Our research team has been following the pet industry for almost 40 years, and we are excited to incorporate our fundamental investment process into this new actively managed exchange traded fund. The Pet Parents Fund invests in companies that participate in the pet ecosystem on a global basis; including a focus on pet food, diagnostics, pharmaceuticals, veterinary care, insurance, and related services. Pet Parents Outlook The U.S. pet industry surpassed $70 billion in total expenditures in 2017, and is expected to climb to $73 billion by the end of Globally, almost $150 billion is spent annually on companion pets. 68% of U.S. households have at least one pet, eclipsing the number of homes with children. The demand for pet products and services continues to surge. In addition, the rise of millennial pet owners should translate to higher per capita expenses as the trend towards pet ownership, particularly among this younger demographic, increasingly precedes the decision to have children. Pet Parents are directing more of their attention to the health and wellness of their companion pets in an effort to achieve longer, less strenuous lives. This includes treatment and prevention related to common illnesses such as atopic dermatitis, kidney disease, and renal failure. Therapeutics companies are spending an increasing amount of their R&D budgets on companion animal health. Diagnostic capabilities and efficiency at the veterinarian s office are also improving at a rapid pace. The ability to quickly analyze blood and other tests can make a tremendous difference in the time it takes to treat and protect a pet. The diagnostic sector is expected to grow at an 8% compound annual growth rate; the highest of any segment in the industry.

2 Cumulative Returns through June 30, 2018 (a) (Unaudited) Since Inception (6/19/18) - Gabelli Pet Parents TM % S&P 500 Index (1.57) In the current prospectuses dated June , the net expense ratio for the Fund after contractual reimbursements by Gabelli Funds, LLC, (the Adviser ) is 0.90%. (a) Returns represent past performance and do not guarantee future results. Total returns reflect changes in share price, and are net of expenses. Investment returns and the principal value of an investment will fluctuate. When shares are sold, they may be worth more or less than their original cost. Current performance may be lower or higher than the performance data presented. Visit for performance information as of the most recent month end. Returns would have been lower had the Adviser not reimbursed certain expenses of the Fund. Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund before investing. The prospectuses contain information about these and other matters and should be read carefully before investing. To obtain a prospectus, please visit our website at The S&P 500 Index is a market capitalization weighted index of 500 large capitalization stocks commonly used to represent the U.S. equity market. You cannot invest directly in an index. NextShares TM is a trademark of NextShares Solutions, LLC. Used with permission. We have separated the portfolio manager s commentary from the financial statements and investment portfolio due to corporate governance regulations stipulated by the Sarbanes-Oxley Act of We have done this to ensure that the content of the portfolio manager s commentary is unrestricted. The financial statements and investment portfolio are mailed separately from the commentary. Both the commentary and the financial statements, including the portfolio of investments, will be available on our website at 2

3 The pet food market is estimated to be worth $30 billion in 2018, with all natural and organic food taking share from less nutritious branded products. As a result, Nestle (1.5% of net assets as of June 30, 2018), J.M. Smucker Co. (1.1%), and General Mills (6.6%) have all made significant investments in their pet food segments in recent years. From an investment standpoint, merger and acquisition (M&A) activity in the pet ecosystem has been robust, with over 50 transactions in the last two years. Over this period, the average multiple paid for public company acquisitions was 3x revenue or 17x EBITDA. Notably, General Mills agreed to purchase Blue Buffalo for $8 billion, a 6x multiple on 2017 sales, or 25x EBITDA. Zoetis (1.3%), the global leader in companion and livestock animal health, has more recently announced a deal to acquire Abaxis (ABAX), a major veterinary diagnostics company, for approximately $2 billion. Let s Talk Stocks Zoetis (1.3% of net assets as of June 30, 2018) (ZTS $85.19 NYSE), with a $40 billion market cap, is a leading provider of products and services to treat and prevent disease in companion and livestock animals. The company s best sellers include: Cytopoint, which offers 4-8 weeks of atopic dermatitis relief through one single injection as a therapeutic; Apoquel, a once daily atopic dermatitis treatment (steroid free); Simparica, a chewable intended to help protect canines from flea/tick exposure for up to 35 days. The two atopic dermatitis drugs are carried in 51% of veterinaries, with the method of treatment dependent on size of dog, chronic vs acute, and price. Zoetis is committed to improving margins in the coming quarters, while the ABAX transaction shows they re willing to invest in new business segments. Kindred Biosciences (1.1%) (KIN $10.65 NASDAQ) is a biopharmaceutical company focused on developing medicine predominantly for companion animals by altering drugs proven safe for humans. Mirataz is the company s first drug approved by the FDA, and more importantly, the first approved drug of its kind. Serving as an appetite stimulant for the feline species, it will help address 3 million of the 9 million cats affected by obesity each year seeking medical attention. Their second drug, Zimeta, helps treat a fever (pyrexia) in horses and is set for FDA approval by the end of this year. While close to 1 million horses suffer from impaired mobility due to fever every year, there is currently no approved medical treatment. Kindred has upwards of 20 other drugs in preliminary stages. We expect KIN to start generating revenues towards the end of 2018, with sales potentially approaching $20 million in Conclusion It is clear that most pet parents have very little sensitivity to price when it comes to caring for their beloved companions. Pets are widely considered a member of the family. More consumers than ever before are classified as pet parents with the goal of achieving a healthy lifestyle. The notion of a healthy pet lifestyle continues to be defined by pet parents as an organic food/treat diet, supported by supplementary therapeutics and veterinary visits. We believe that the pet industry will carry on this growth, as innovation in medicine and 3

4 healthcare continue to serve as potential catalysts within the industry. A transition from inexpensive, unhealthy food supplements to premium, organic alternatives will help top line growth for many companies as a result. As the pet ecosystem continues its expansion into the UK and other regions in Europe, the potential for global growth paves the way for increased industry wide performance and growth. July 25, 2018 Top Ten Holdings (Percent of Net Assets) June 30, 2018 General Mills Inc. 6.6% Henry Schein Inc. 2.2% Colgate Palmolive Co. 6.4% Heska Corp. 2.1% Central Garden & Pet Co. 5.4% Spectrum Brands Holdings 1.6% PetIQ Inc. 4.0% Nestle SA 1.5% IDEXX Laboratories Corp. 2.2% Aratana Therapeutics Inc. 1.5% Note: The views expressed in this Shareholder Commentary reflect those of the Portfolio Manager only through the end of the period stated in this Shareholder Commentary. The Portfolio Manager s views are subject to change at any time based on market and other conditions. The information in this Portfolio Manager s Shareholder Commentary represents the opinions of the individual Portfolio Manager and is not intended to be a forecast of future events, a guarantee of future results, or investment advice. Views expressed are those of the Portfolio Manager and may differ from those of other portfolio managers or of the Firm as a whole. This Shareholder Commentary does not constitute an offer of any transaction in any securities. Any recommendation contained herein may not be suitable for all investors. Information contained in this Shareholder Commentary has been obtained from sources we believe to be reliable, but cannot be guaranteed. Please visit us on the Internet. Our homepage at contains information about GAMCO Investors, Inc., the Gabelli/GAMCO Exchange Traded Managed Funds (ETMFs), IRAs, 401(k)s, current and historical quarterly reports, closing prices, and other current news. We welcome your comments and questions via at info@gabelli.com. The Fund s daily NAV is available each evening after 7:00 PM (Eastern Time) by calling 800-GABELLI ( ). Please call us during the business day, between 8:00 AM 7:00 PM (Eastern Time), for further information. You may sign up for our alerts at and receive early notice of quarterly report availability, news events, media sightings, and mutual fund prices and performance. 4

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6 About NextShares: Shares of NextShares funds are normally bought and sold in the secondary market through a broker, and may not be individually purchased or redeemed from the fund. In the secondary market, buyers and sellers transact with each other, rather than with the fund. NextShares funds issue and redeem shares only in specified creation unit quantities in transactions by or through Authorized Participants. In such transactions, a fund issues and redeems shares in exchange for the basket of securities, other instruments and/or cash that the fund specifies each business day. By transacting in kind, a NextShares fund can lower its trading costs and enhance fund tax efficiency by avoiding forced sales of securities to meet redemptions. Redemptions may be affected partially or entirely in cash when in-kind delivery is not practicable or deemed not in the best interests of shareholders. A fund s basket is not intended to be representative of the fund s current portfolio positions and may vary significantly from current positions. As exchange-traded securities, NextShares can operate with low transfer agency expenses by utilizing the same highly efficient share processing system as used for exchange-listed stocks and ETFs. Market trading prices of NextShares are linked to the fund s next-computed net asset value (NAV) and will vary from NAV by a market-determined premium or discount, which may be zero, and may vary significantly from anticipated levels. Buyers and sellers of NextShares will not know the value of their purchases and sales until after the fund s NAV is determined at the end of the trading day. Market trading prices may vary significantly from anticipated levels. Trading in shares does not offer the opportunity to transact intraday based on current (versus end-of-day) determinations of the shares value. NextShares trade execution prices will fluctuate based on changes in NAV. Although limit orders may be used to control trading costs, they cannot be used to control or limit trade execution prices. As a new type of fund, NextShares have a limited operating history and may initially be available through a limited number of brokers. There can be no guarantee that an active trading market for NextShares will develop or be maintained, or that their listing will continue unchanged. Buying and selling NextShares may require payment of brokerage commissions and expose transacting shareholders to other trading costs. Frequent trading may detract from realized investment returns. The return on a shareholder s NextShares investment will be reduced if the shareholder sells shares at a greater discount or narrower premium to NAV than he or she acquired the shares. 6

7 Gabelli Pet Parents TM One Corporate Center Rye, NY Portfolio Manager Biography Daniel M. Miller joined Gabelli in Currently he serves as a portfolio manager of Gabelli Funds, LLC and manages several funds within the Gabelli/GAMCO Fund Complex. Mr. Miller is also a Managing Director of GAMCO Investors, Inc. He graduated magna cum laude with a degree in finance from the University of Miami in Coral Gables, Florida. 7

8 GABELLI PET PARENTS TM One Corporate Center Rye, NY t 800-GABELLI ( ) f e info@gabelli.com GABELLI.COM Net Asset Value per share available daily by calling 800-GABELLI after 7:00 P.M. BOARD OF TRUSTEES Mario J. Gabelli, CFA Chairman and Chief Executive Officer, GAMCO Investors, Inc. Executive Chairman, Associated Capital Group Inc. Anthony S. Colavita Attorney, Anthony S. Colavita, P.C. Frank J. Fahrenkopf, Jr. Former President & Chief Executive Officer, American Gaming Association Michael J. Melarkey Of Counsel, McDonald Carano Wilson LLP Kuni Nakamura President, Advanced Polymer, Inc. Salvatore M. Salibello, CPA Senior Partner, Bright Side Consulting OFFICERS Agnes Mullady President Andrea R. Mango Secretary John C. Ball Treasurer Bethany A. Uhlein Vice President Richard J. Walz Chief Compliance Officer DISTRIBUTOR G.distributors, LLC CUSTODIAN, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT The Bank of New York Mellon LEGAL COUNSEL Paul Hastings LLP GABELLI PET PARENTS TM NEXTSHARES TM Shareholder Commentary June 30, 2018 This report is submitted for the general information of the shareholders of Gabelli Pet Parents TM NextShares. It is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. GAB5004Q218SC