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How to Profit From an Ageing Population

Rising life expectancy across the world increases opportunities for healthcare, financial services and leisure companies

Marina Gerner 10 July, 2019 | 3:14PM

Pensioners on a beach

The ageing population is a mega trend that investors are keeping an eye on for long-term opportunities. With a quarter of the British population set to be 65 or older by 2050, according to the ONS, this huge demographic shift represents a major opportunity for some businesses.

The UK is not the only country to see these changes.

“Ageing populations are now a worldwide phenomenon and the trend is accelerating,” according to a report by US asset manager PGIM. Worldwide, life expectancy has risen from 49 years in 1955 to 72 years today, and the trend is set to continue.

So, what sectors are likely to benefit from this development? And which stocks, funds and ETFs can investors consider who would like some explore this theme?

Healthcare Opportunities

“The healthcare sector is perhaps the most obvious beneficiary,” says Rachel Winter, associate investment director at Killik & Co. There will be more demand for healthcare products, services and devices that help people with on-going conditions in old age.

“For example, someone with diabetes may be given a glucose monitor which could help them to manage their condition over a long time period. We see potential for Abbott Laboratories (ABT), which has exposure to nutrition and medical devices,” she says.

Perhaps a more niche area of the healthcare that could benefit is the dental sector. Winter says: “If people are living longer, their natural teeth are less likely to last a lifetime, and hence there has been increasing demand for dental implants in recent years. Straumann Holding (STMN) is a market leader in this space.”

“The one key factor to look at is healthcare,” agrees Adam Laird, head of ETF strategy at Lyxor ETF, which has two ETFs in the space: the three-star rated Lyxor STOXX Europe 600 Healthcare UCITS ETF (HLT) and the four-star rated Lyxor MSCI World Health Care UCITS ETF (HLTG).

The first ETF is focused on Europe and the UK, while the second is more global, with almost 70% of assets in the US and 5.9% in Japan. “They are passively managed, giving exposure to the whole market,” Laird says.

Think About Finance

“The financial services industry is perhaps the biggest beneficiary of all,” argues Adrian Lowcock, head of personal investing at Willis Owen. That’s because it provides products such as pensions, insurance and equity release, which allow older generations to make the most of their wealth.

“There should be more demand for financial services and products,” Winter agrees. If someone retires at 65, they could easily have 30 years of life ahead of them which will need to be funded.

“Investment and management of retirement savings is therefore imperative, and we see significant potential for companies such as Prudential (PRU), which offer retirement solutions,” she says.

For thematic investments on the ageing population theme that include healthcare and financial companies, Lowcock mentions the iShares Ageing Population ETF (AGES), which has 41% of assets in the healthcare sector and 34% in financial firms. Top holdings include insurance provider Genworth Financial and US medication firm Opko Health.

Other options include the Jupiter Financial Opportunities fund, which invests in financial services firms across the world including Mastercard and PayPal. Alternatively,the five-star rated Polar Capital Healthcare Opportunities fund invests in healthcare companies such as Abbott Laboratories, Merck & Co and Boston Scientific Group and has produced stellar annualised returns of 19% over 10 years.

Tap Into Consumption

The ageing population is expected to lead to an increase in demand for certain goods and services such as holidays and leisure activities, says Lowcock.

There are similar spending patterns among older households in the US and Japan, when it comes to spending more on house repairs, for example, according to the PGIM report. Meanwhile, spending on schooling, consumer durables and dining out all tend to be lower among older households.

But it may be more difficult to generalise about these patterns than it is about healthcare spending and financial products in retirement.

“At the end of the day, the demographic needs of an older population are not that dissimilar,” says Laird. “There used to be an assumption that technology companies struggle to hit the older population - but my parents are in their 60s, they spend more time on social media and buy more from Amazon than I do!”

Generations who retire in the future may keep habits they have gained in younger years, when it comes to technology or dining out.

Go Global

In any case, it’s worth remembering that an ageing population is a global issue. “For example, there are currently 20 million people over the age of 80 in China,” says Rob Powell, lead strategist for the thematic fund range in EMEA at iShares. “And by 2050 the UN forecasts that there will be 120 million - the current population of Japan or Mexico.”

He argues that the ageing consumer is already an important driver of global economic growth. “The US’s elderly economy would be one of the largest economies in the world in its own right, and as more baby boomers enter retirement, companies that have this exposure should continue to experience growth.”

Therefore, he says, it’s worth taking a global view, as well as a long-term view, on this particular investment theme.

 

 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Abbott Laboratories81.78 USD-0.24
iShares Ageing Population ETF USD Acc GBP444.40 GBX-0.66
Jupiter Financial Opportunities I Inc721.25 GBP-0.51
Lyxor MSCI World HealthCare TR ETF C USD GBP25,703.50 GBX-0.72
Lyxor Stoxx Europe 600 Hlthcr ETF Acc99.58 EUR-0.46
Polar Capital Healthcare Opports Inc31.13 USD-0.12
Prudential PLC1,459.50 GBX-1.12
Straumann Holding AG860.40 CHF-0.07

About Author

Marina Gerner  is a freelance journalist

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