INVESTING FOR A "GOLDEN AGE"
Thematic investing can be one way of seeking to outperform the market. We talk to Johan Utterman, a Portfolio Manager at Lombard Odier Investment Managers, about the ‘Golden Age’ strategy: investing in companies looking to profit from an ageing demographic.
So what’s the theory behind this investment strategy?
Well, the data speak for themselves, and we think this is one of the most important trends in the investment world. There will be 2 billion people aged 60 and above by 20501, and their spending power will have reached $15 trillion by 20202. So not only are life expectancies lengthening – by almost 100 days a year on average in some countries3 - but people are staying healthier and active for longer. And this is a demographic with huge purchasing power. Senior citizens and ‘baby boomers’ – by which I mean those born after the Second World War – sit on up to three quarters of net worth in the US and other developed countries4.
And what kind of things are they buying?
I can give some specific examples if you like. Some are more obvious than others: people aged over 60 take three times as many medications as those below 60, as their health starts to decline5. People want to look good as they age: women aged 50-60 spend three times as much on cosmetics and skin lotions as those aged 20-306. And people want to enjoy their retirement: in the US, the average age of a Mercedes S-Class buyer is 627. So that’s a couple of mini trends already: healthcare and cosmetic spending, and spending on high-value discretionary items.
How can investors take advantage of these trends?
We typically focus on six sectors, and seek high quality companies within them. The first is healthcare: anything from hearing aids, cancer drugs and diagnostic tools to hospital operators. And the industrial sectors that supply them: laboratory equipment, and food and water testing facilities. The third is material companies, focussing on vitamins, nutrition and dietary supplements. The fourth is financials: life insurers and asset managers, who help people save and provide for their retirement. We also target companies that focus on consumer discretionary spending: anything from art and watches, to mobile homes, cruises and funerals. And finally the technology sector is also very important: anything from healthcare IT, to robots and consumer electronics.
1Source: World Health Organisation estimate
3Source: ‘Broken Limits to Life Expectancy’, Jim Oeppen and James W. Vaupel, Science Magazine 2002. Female life expectancy in record-holding countries has increased at almost 3 months per year from 1840 to the present day
4Source: ‘The History and Demography of Aging in the United States’, from the Encyclopedia of Aging and Public Health, edited by Sana Loue and Martha Sajatovic, 2008
5Report by American healthcare company Perrigo.
6Report by Financial company Evercore ISI
7Source : USA Today.
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