The ageing population theme has so far been largely overlooked by fund managers according to this article in Moneywise.
Financial folks predict (unsurprisingly) that if people live into their eighties, they tend to run down their savings, buy annuities, down-trade in the housing market and maybe go into retirement accommodation, and spend on domiciliary care and nursing homes. Along the way they will probably spend more on leisure activities and holidays, and they may also spend on financial, legal and tax advice to ensure their estates are inherited tax-efficiently.
Therefore, they say, it might make sense to consider investing in care home firms, specialist homebuilders, annuity and equity release providers, cruise operators and specialist drug companies, for example.
But there is a problem apparently: good quality UK-listed companies in many of these sectors are not easy to find as most of the good companies that deal with the elderly’s needs – care homes, for example – tend to be privately run.
The publicly owned ones are ‘locked into a cycle of profitless prosperity’ because of their reliance on the public sector.
The best bests are in the broad healthcare angle of the ageing population story partly because they are providing solutions, not simply exploiting the ageing situation. The rationale?:
Elderly people require much greater levels of healthcare. From the age of 65 onwards we need, on average, six times the level of medical services and products required by the rest of the population, and beyond the age of 85 that ratio rises to nine times.
Due to the decline of extended family households, elderly people can no longer rely on family support as they used to.
People of all ages are increasingly aware of the need to eat healthily and keep fit, and retired people are prepared to spend money in the hope of a longer and healthier life.
So what company stocks to pick?
These include manufacturers of orthopaedics as the demand for joint replacements rises; dialysis care companies, as kidney failure is increasing rapidly, exacerbated by rising levels of diabetes and poor diet as well as age; care home operators; eye care and hearing aid companies; and companies producing dental implants.
To that end, the UK’s “Sustainability” fund’s international portfolio includes shares such as Swiss walking frame company Zimmer; US dialysis company DaVita and major hearing aid specialist Sonova.
The fund also holds a couple of European care homes: French specialist Korian and German firm Rhoen-Klinikum because “The French and Germans have a more advanced model, involving larger institutions with hospitals integrated into them,” .
The fitness/healthy living angle is also covered, with such holdings as bike gear manufacturer Shimano, on the back of a growing interest in leisure cycling, and WeightWatchers.
The many aspects of global population growth, especially the rise of consumerism in emerging markets, where population growth is concentrated, have been more widely picked up by theme-oriented fund managers, including Premier and Newton.
At JPMorgan, the $30 million (£20.05 million) Global Consumer Trends (GCT) fund concentrates on the shifting patterns of global consumer demand and winning and losing companies over time.
Demographics, including the ageing population, and urbanisation is one of the GCT fund’s three themes, alongside health and wellness, and growing aspirational demand in emerging markets, although there is clearly considerable overlap between them.
GCT likes generic drug companies such as the Israeli company Teva Pharmaceutical Industries, which identifies branded drugs coming to the end of their patents and manufactures cheap unbranded versions.
Other demographics-led sector choices include annuities, where demand is bound to rise as growing numbers of retirees use their pensions to buy a lifetime income, and the digital revolution, which is not only shaping the requirements and expectations of young people who have never known anything else, but also steadily seducing older, more resistant converts.
But, generally, beyond the offices of thematic investment houses and specialist funds, are mainstream fund managers taking any notice of these population trends? Just like other businesses, demographic trends are just starting to filter through.
Older people have different investment requirements from younger investors. Baby boomers have built up substantial savings, particularly in middle age, but as they stop earning their habits change.
As Tim Bond points out in the 2010 Barclays Capital Equity Gilt Study: “The ageing of the developed world’s boomer generation into retirement will reduce net savings balances in these economies.”
That could affect financial markets, for example, making demand-fuelled stockmarket bubbles like that of the late 1990s less likely, and raise demand for particular investments and strategies, says Peter Temple. He cites:
* Selling rather than buying property and investments to release cash;
* Switching out of equities into less risky investments such as bonds;
* Increasing reliance on equity income – currently 70% of people reinvest income from their equity income fund, but Mark Dampier suggests this percentage will decline as more retire;
* A wider range of income funds looking beyond the UK (for example, Neptune has just launched a China Income fund);
* Rising demand for annuities.