Who wants to live forever?

Posted by Liz Rees in Latest insights category on 07 Jun 19

Ageing populations are producing some of the biggest social and economic upheaval of modern times. Advances in medicines and healthcare, along with rising standards of living and relative peace, have contributed to longer and healthier lives. This, in turn, is creating long-term growth opportunities for both companies and investors.

More of the golden years?

Retirement used to be associated with old age and infirmity, and reaching your century was a rarity. However, life expectancy has risen markedly in recent decades. The World Health Organisation (WHO) calculates the global average life expectancy to be around 72 years (2016 data). For UK citizens, the Office for National Statistics (ONS) estimates that a man of 65 years can expect to live, on average, to around 86 years and a woman to nearly 88 years.

A decline in birth rates has also contributed to the ageing of the population; the WHO forecast (in 2018) that by 2050, nearly a quarter of the global population will be aged over sixty. The impact of these trends will be greatest in developed countries where the working population is shrinking.

If there are not enough workers to fund benefits, including state pensions, this will require a longer working life. In the UK, for example, the government has been raising the state pension age, causing frustration for some close to retirement whose plans have been thrown into disarray. To put things into context, when the very first Old Age Pension was introduced in the UK, in 1908, average life expectancy was 47!

The lucky generation?

‘Baby boomers’ are those born between 1946 and 1965, so they are either in, or are approaching, retirement. Many do not see themselves as ‘old’ and are leading busy, active lives, particularly if blessed with good health and financial security.

As a whole, the over-60s living in developed markets, have accumulated substantial wealth over their working life and, in the UK, now own a significant portion of the population’s assets, including property, and also benefitted from inflation-protected defined benefit pensions. They are expected to be an important driver of consumption over the next decade.

This will benefit many sectors; younger retirees tend to spend a larger part of their household expenditure on dining out or recreation. Interestingly, more pensioners are opting to live in cities that give easy access to entertainment and leisure activities, at least for the earlier part of retirement.

Of course, what really matters is health not life-span. Sadly, not all retirees will enjoy good health throughout retirement, and care needs tend to increase in later years. Unsurprisingly, those aged over 65 account for the largest share of healthcare spending.

The ‘silver spenders’

Consumption amounts to around 70% of global economic activity and is, therefore, a source of significant investment opportunity for suppliers of sought-after products and services.

As well as healthcare and pharmaceuticals, there are several other key themes associated with older consumers. These include: travel, particularly cruises which are the fastest growing segment of leisure travel; beauty-women over 60 spend twice as much as the under 25s; home improvements and pets-older people spend far more on their beloved animals.

There is also greater awareness of the benefits of a good diet and keeping fit. Unhealthy lifestyles may impair, rather than shorten, lifespans. Naturally, there will be a growth in demand for care, home support and specialist living facilities. A number of older people require some form of long-term help, which may include home nursing, community care and assisted living, residential care and long stays in hospitals.

Diseases such as cancer, diabetes and cardiovascular disease are linked to ageing; these are predicted to account for up to a third of all pharmaceutical spending by 2020. While cardiovascular disease remains a significant cause of death, medical knowledge has advanced to the extent that warning signs are more frequently identifiable and treatable.

One unfortunate consequence of an ageing population is a big increase in the number of people with various types of dementia. Although there is no cure today, a number of biotechnology companies have drugs in the pipeline and the industry is expected to have spent over $10bn on developing treatments by 2021.

Meanwhile, industries such as housing and finance will have to adapt to the older generations’ needs. Retirees have a large part of their assets tied up in property so, for those who are asset rich but cash poor, equity release is an increasingly popular way of boosting their income. Others opt for smaller properties, retirement communities and up-market nursing homes.

How to invest in the demographic revolution

Investors can hone in on the spending power of the over 65s. Although overall economic growth in countries most advanced in terms of ageing populations, notably Japan and Europe, may be held back there should be opportunities to invest in agile companies, both domestic and international.

Pharmaceuticals is a huge industry and many funds will have drug companies amongst their top holdings. One company with several products related to ageing is US-listed Pfizer. It manufactures leading drugs for rheumatoid arthritis, as well as a vaccine for pneumonia.

Fund ideas

We are seeing more fund managers adopt a thematic approach to investing, and ageing demographics is itself a popular theme.

Artemis Global Select (Morningstar silver rated) and AXA Framlington Global Thematics both target such opportunities. There are also a number of specialist healthcare and biotech funds available, though please remember that biotechnology can be higher risk, due to dependency on drug trial outcomes. International Biotechnology is an investment trust which is available on the Willis Owen platform.

In my opinion, the themes outlined here are not short-term investment fads; low fertility and rising life expectancy will have an influence on stock markets long after my boomer generation dies out.

Important Information: We do not give investment advice, so you will need to decide if an investment is suitable for you. If you are unsure whether to invest, you should contact a financial adviser.