Golden Age in review 2019

investment viewpoints

Golden Age in review 2019

Johan Utterman - Senior Portfolio Manager

Johan Utterman

Senior Portfolio Manager

LO Funds - Golden Age captures the ageing population theme by investing in companies that help people live longer, healthier, financially secure and rewarding lives.

Over the course of 2019, we highlighted several key trends which we felt were important to this ageing population strategy. Here is a roundup of the themes we shared with investors over the course of the year.

 

Consumer spending

Consumer goods and services are one of the sectors most exposed to the ageing population trend. Discretionary spending among the 65 and over age group has grown greatly as a consequence of wealth accumulation, coupled with the loss of overheads such as mortgage payments and commuter costs that are often a consequence of retirement. Some refer to this sub-theme as the rise of the silver economy.  Providers of consumer goods and services which are valued by this demographic – such as cosmetics and home improvement - have the potential to deliver above-market growth rates and excess economic returns.

 

Financial planning

The older generation is facing a potential shortfall of professional financial advice at a time when it is needed the most.

The wealth management market in the UK alone is today worth an estimated £2.2 trillion, but there is still a shortage of financial advisers capable of providing this face-to-face financial advice. An ageing population likely increases the demand for life insurance products, too.

 

Housing

The need is growing for affordable housing suitable for the older generation. There has already been tremendous growth in terms of 55-plus living communities in recent years. A number of the Real Estate Investment Trusts (REITs) that own and operate these communities have manufactured housing that costs one quarter of the average cost of a single new family home.

Another market with high potential for growth in this area is senior living facilities. These are generally aimed at older members of this demographic and often consist of independent living, assisted living, and dementia/Alzheimer’s care.

 

Alzheimer’s disease

Investors frequently have questions regarding medical afflictions commonly associated with ageing, such as Alzheimer’s disease. Enquiries usually centre on what companies in the portfolio hold the most promise on advancing medical progress in this field. Unfortunately, the answer is not straightforward.

We look at potential solutions that go beyond drug research, such as early detection diagnostics or even avenues to prevent Alzheimer’s. For example, where substantial quantities of lifestyle data might help us uncover more about potential risk factors, in order to screen out “multiple injuries” that can occur on the road to Alzheimer’s disease.

 

Healthcare

One of the major challenges presented by an ageing population is rising healthcare costs. Innovative healthcare companies will be increasingly measured on whether or not they can help solve this challenge and reduce cost. One way to lower cost is to make treatments more targeted. Other examples might include the development of surgical robots who help reduce the length of hospital stays by making surgeries more reliable, or wearable technologies that enable people to remain independent and living in their own homes later into their lives.

 

Robotics

There are two reasons robots come in handy in an older population. The first is that robots can replace human labour. In many developed countries, the number of retirees is growing up to three times faster than the number of younger people. Replacing them is no easy feat, both in terms of numbers and skills, and tends to pave the way for automation and the rise of industrial robots. The second reason is that a growing number of older people creates entirely new markets for a wide range of new robots. For example, those which can be used in medical procedures.

 

Healthy living

A key challenge facing our society is the rising burden of healthcare costs. But increasing importance will also have to be placed on prevention and on emphasizing the responsibility each individual has for their own health. In a number of conditions, a healthier lifestyle can likely help delay the onset of costly complications.

When a greater emphasis is placed on the importance of healthy living, this fuels demand in vitamins and nutritional supplements, physical exercise, and is a means of promoting cognitive health.

 

For more information on the long-term trends we believe are reshaping the global landscape and presenting sources of potential outperformance, visit our thematic equities hub.

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