Silver spending

investment viewpoints

Silver spending

Johan Utterman - Senior Portfolio Manager

Johan Utterman

Senior Portfolio Manager

The older generation are growing wealthier. This presents a number of compelling investment opportunities in the consumer discretionary space.

Our ageing population is presenting a number of economic opportunities. The rapidly growing older demographic is set to become a major lead market for many commercial sectors, especially those connected with discretionary spending.

The median age of the population is rising at significant rate. In developed markets, the number of those aged 65 or more is growing three-times faster than younger generations. The spending power of this older demographic is also growing at a much faster pace than its contemporaries. Today’s baby boomers and seniors are estimated to hold up to three-quarters of wealth in some countries. This has given rise to what has been dubbed ‘the silver economy.’ This demographic represents an incredible disruptive potential, since it represents the third largest economy on earth.

Among the sectors most exposed to the ageing population trend is consumer goods/services. As a consequence of this wealth accumulation, coupled with the loss of overheads such as mortgage payments and commuter costs that are often a consequence of retirement, discretionary spending has grown greatly. In the past two decades, consumer spending among Europeans aged 60 and over rose 50% faster compared to those under 30. In 2017, close to half of the US adult population were 50 and older and controlled a full 70 percent of the disposable income, according to Nielsen.

The consumer discretionary space has the potential to offer a number of opportunities for investors looking to capitalize on this demographic trend.

Cosmetics offer a compelling starting point for this strategy. The spending habits of this demographic confirm this, as does the fact that a number of leading cosmetics firms are increasingly focused on the older generation. Women over the age of 50 spend three times as much on skin care as younger women and they tend to use more and higher-priced products. Initiatives targeting mature consumers have become far more commonplace in recent years.

L’Oreal1, for example, named Oscar-winning actress Helen Mirren, 74, as a brand ambassador, in order to promote the L'Oréal Paris Age Perfect portfolio of products. These products are specifically designed to appeal to an older demographic and are billed as ‘rejuvenating skincare for mature skin.’ Jane Fonda, 76, and Diane Keaton, 68, have also joined as ambassadors in recent years. Skincare & cosmetics brand Estée Lauder1 is another brand which enjoys greater popularity with the baby boomer generation than younger counterparts.

The home improvement sector is another which has experienced robust growth, underpinned by demographic trends. Older homeowners are expected to account for more than three quarters of projected growth over the next 8-10 years in the US.

Home renovation can help when it comes to selling the property, if the owners wish to downsize to a smaller one in retirement. It can also be a necessary requirement for those who perhaps face mobility issues or other adverse effects of old age. Renovation can also be necessary when taking on additional properties. More than half of landlords in the UK are aged 55 years or older, and a third are retired. Buy-to-let is often used as a source of income in retirement, but these properties will sometimes need upgrades in order to be brought to market. Home improvement stocks like Home Depot and Lowe’s1 both offer exposure to this growth opportunity. For exposure to the more discretionary, luxury renovation sector, Poolcorp1 is the world's largest wholesale distributor of swimming pool and related outdoor living products.

Another common outlet for discretionary spending is travel. Figures from the UK Office for National Statistics (ONS) show that the over 65s spent more than £6.1 billion exploring the world in 2018. This demographic is especially fond of onboard holidays, such as cruises, and it accounts for the largest share of spending in this sector. Exposure to this travel trend can be found through names such as luxury goods conglomerate LVMH, which recently acquired luxury hotel, restaurant, train and river cruise operator Belmond1.

Broader access to this trend can be obtained through the means of discretionary spending rather than the end products and services. Visa, for example, offers an alternative method of gaining exposure to  consumer spending habits. The company is also attuned to the growing prevalence of ‘silver spending’ and has previously forecast that baby boomers will continue to be a primary driver of consumer spending.

The fast-growing and increasingly-wealthy “silver” generation presents a compelling investment opportunity. Providers of consumer goods and services which are valued by this demographic have the potential to deliver above-market growth rates and excess economic returns.

sources.

1Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or securities. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities discussed in this document.

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