This article examines issues such as investment implications of an ageing population in many countries.

Regardless of the level of wealth people enjoy, the inevitability of ageing brings about financial consequences. The “greying” of populations in developed market economies, such as Italy, Japan, the US and Germany, has big implications for retirement systems. Tax-funded pensions are under strain as fewer employees pay into public coffers. It may seem paradoxical that a great achievement for medicine and lifestyle – longer lifespans – is such a headache. With political populism and dislike of “austerity” policies so evident (although in many cases no actual real cuts in the size of the State have taken place), appetite for making changes appears to be limited. Consider the recent controversy of proposals by the UK Conservative Party to make the wealthy pay more from their own pockets for long-term care. These proposals caused a firestorm over a so-called “dementia tax”. Even leaving aside the rights and wrongs of the specific idea, the very fact that such an idea met with such opposition from other, more left-wing political parties will have chilled ideas of radical reform to provision for old age.

However, there remain important issues to consider with this “greying” trend, not least the kind of investment opportunities is raises. In this article, Vafa Ahmadi, who is head of global thematic equities – CPR Asset Management, sets out his views about the landscape. This news service does not necessarily endorse all views of guest contributors but it is pleased to share such opinions and invites responses. Email tom.burroughes@wealthbriefing.com

Britain is days away from making important choices. While most of us are eagerly waiting to hear what our politicians will do about the terrorist and security threats we face, many of us will be looking at how the government will manage an ageing population, and the strain this will put on public spending and pensions, which will inevitably put pressure on younger generations to have to work longer and save more for retirement. But the fact is that ageing is a worldwide phenomenon that will inevitably accelerate in the coming decades, as technological advances help us live longer lives. And while ageing can be alarming to some - to investors, this presents hopeful prospects – without having to invest in healthcare.

It comes as no surprise that countries like Japan and those in Western Europe have been growing old for decades. But emerging countries – also known as ‘future ageing’ populations – are experiencing ageing more intensely. This widens the investment universe and opens up a number of opportunities.

While ageing used to mean that experiences and growth expectations started going downhill when entering the retirement stage in the life cycle, ageing has now taken on a new meaning: as longevity and technological advances improve, rising education and affluence allows the elderly to enjoy a higher quality level of life experiences.

This new way of life lends itself to the “silver economy” - economic activity generated by the spending linked to serving the needs of those over 50. To put things in perspective, the US silver economy - economic activity serving the needs of Americans over 50, is worth £7 trillion ($9.02 trillion), making it the third largest economy in the world after the US and China, and larger than Britain, Japan, and India (1).  In the last 18 years, companies whose business is related to the ageing population have achieved average revenue and earnings growth that has outperformed the global market. This trend is expected to gather strength.

More and more sectors will be driven by the spending of seniors, as high net worth consumers are those with the fastest growing expenditure rate among the population. Because older people tend to have more spare time (and disposable income), leisure, gardening, and travelling will benefit from increased spending by those over 65. Automobile companies also stand to benefit, as former baby-boomers change cars more regularly than today’s millennials. More than three over every five new vehicles sold in the US were purchased by baby boomers. At the same time, the percentage of younger consumers buying new vehicles dropped. (2)  This is why automobile makers are turning to seniors over the age of 55 for their premium products, as 50 per cent of new car buyers are seniors.

Young pensioners with relatively high purchasing power also seek to stay appearing young as long as possible, with personal grooming and care companies poised to benefit. For those over 80, retirement institutions and security companies can be an appealing play for investors looking to tap into companies benefiting from the spending power of the elderly and those who become more dependent.

Seniors’ propensity to spend on security and health also means they are increasingly connected to the "internet of things" for which there are a wide range of applications. Some 10 per cent of those 55 or over have a connected device, with an 80 per cent satisfaction rate. Some 73 per cent of that usage is related to health and security. (3) In health, this covers applications like monitoring devices (for heart and blood pressure), incident alarms (which track any falls connected via your bed), and connected hearing aids. 

As emerging economies also experience an intensification of the ageing phenomenon, they are likely to experience an increase in lifestyle diseases traditionally experienced by rich countries. Take the rapidly growing diabetes market. The number of cases identified worldwide has increased from 30 million in 1985 to 194 million in 2010 and the World Health Organisation estimates that the number of cases will increase to more than 300 million by 2025. This growth can be attributed to the significant increase in obesity rates in developed countries and the problem of ageing populations, but at the same time, this issue also affects China where lifestyles are becoming “Westernised” as a result of urbanisation and an increase in disposable income.

It’s easy for investors to be exposed to sectors common to both former baby boomers and the elderly, such as healthcare and pharmaceuticals. But a “mono sector” approach might be vulnerable to market headwinds, such as the one experienced by the pharmaceutical sector in recent years, or the risk of Obamacare being repealed as we saw a few months ago.

What’s important is for investors to treat ageing as an “ecosystem” covering different sectors, rather than a momentum or fad-driven phenomenon. Ageing is one of the strongest underlying mega-trends in the developed and developing worlds, and as one of the only non-cyclical global themes, ageing is a perfect way for investors to invest using a buy and hold approach, by tapping into sectors like automobile, security, life insurance, and personal care.

Notes:

1, Oxford Economics - The Longevity Economy.

2, JD Power - AARD Study.

3, Medialis study on senior strategic.