This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on April 4 - 10, 2016.
The ageing market is flourishing, thanks to rising affluence, changing demographics and longer life expectancy. CPR Asset Management’s head of thematic equities Vafa Ahmadi says sectors such as leisure, electronics and automotive are expected to reap the benefits of this megatrend.
The silver-haired economy is becoming a sustainable theme for investors, as new industries and businesses target the older generation who are determined to enjoy their retirement to the fullest.
According to the United Nation’s World Ageing Population 2015 data, there were 901 million people aged 60 and above last year. That figure is projected to rise to 1.4 billion by 2030. Of the 901 million, 67% live in developing countries. The data also shows that there will be more senior citizens than children under the age of 15 by 2050.
The growing ageing population is a boon for those in related industries, such as leisure, automotive and healthcare, which are flourishing as the population ages at an unprecedented rate, births decline and longevity improves.
People are now savvier and more engaged with their surroundings and in most parts of the world, they no longer age like the previous generations did decades ago. The current silver-haired generation take care of their health and life. They strive to stay fit, look good and make time for leisure, all of which contribute to longer life expectancy. They are also determined to dispel the myth that ageing means the end of life as they know it.
This trend has sparked the growth of new products and services that cater for their needs. CPR Asset Management, a French boutique fund house with the Amundi Group, was one of the earliest to spot the burgeoning trend and launched the CPR Silver Age Fund in 2009.
CPR Asset Management’s head of thematic equities Vafa Ahmadi says when it comes to ageing, most people think of healthcare and pharmaceuticals. But the industry includes sectors such as leisure, security, electronics and even automotive.
Ahmadi points out that companies in these sectors stand to make gains as their business grows in line with the rising number of elderly customers, which is almost an unending cycle. “The ageing economy is the sum of all economic activity — both in terms of production and services — that aims to fulfil the needs of a certain category of population which we consider as ageing. Let’s say beyond 60 or 65 years old,” he says.
“Save for a half dozen sub-Saharan African countries, Pakistan, Afghanistan and, likely, India, where the population is not ageing yet, the size of the ageing market is growing every day.”
The Organisation for Economic Cooperation and Development’s (OECD) International Transport Forum, in an April 2015 discussion paper, says the mistake most people make when planning or offering facilities or services to the elderly is to think of them as a homogeneous group and assume that the current generation is like previous generations. “Many of the current ageing generation — the baby boomers — think of themselves, as Deloitte puts it, as ‘forever young’. One only has to look at the numerous examples of ageing rock bands — the Rolling Stones generation — to see this phenomenon in action,” says the OECD.
Ahmadi notes that this segment of the economy is expanding. “There was a study carried out by Oxford Economics in 2014, which says if we consider the longevity economy as the sum of all products and services needed by an individual beyond the age of 50, then 46% of the US gross domestic product (GDP) is related to longevity. The longevity economy would be the third largest economy in the world, after China and the US. So, it is huge.”
Baby boomers — those who were born between 1946 and 1964 — made up 75.4 million of the US population in 2015. They are expected to inherit US$8.4 trillion, according to data compiled by CNN. The US news agency says the last of this generation turns 65 in 2029, and the population of those age 65 and above is projected to double to 71.5 million by 2030 and reach 86.7 million by 2050.
According to the Deloitte’s Hospitality 2015: Game Changers or Spectators report, the baby boomers own 60% of the nation’s wealth and account for 40% of spending. “When someone invests in the economy of ageing, what do they get? This theme of ageing is a growth-bringing theme because in terms of sales and earnings, it shows higher growth when compared with broader market indices, such as the MSCI Europe or MSCI world.
“So, the first thing we were looking for is whether ageing really brings extra growth or is it only in our minds and marketing. We went back to 1996 to have a clean slate of data and we rolled out the same exercise over and over. And over the last 20 years on average, in terms of Europe, global and Asia, we have this positive differential in terms of growth.
“The second thing — but the most important — is that you invest in a less risky universe than the rest of the market because we strip out whatever sector that is not relevant to ageing. Mainly what we do is strip out the most cyclical sectors, the most capital-intensive such as mining and oil.”
Ahmadi says ageing is a stable, non-cyclical trend. “This is very important as there aren’t too many non-cyclical trends out there and there aren’t many permanent trends. Therefore, we thought the fund would be an excellent proxy to a buy-and-hold type of strategy, and that is why we decided to launch the European version six years ago and the global version more than a year ago.”
He adds that the fund has kept its mandate that it has to thrive in a low or no-growth environment as the markets were still reeling from the 2008 global financial crisis.
Top-down and bottom-up approaches were combined to identify about 200 stocks, of which about 60 were picked for the European portfolio. Ahmadi says this is the reason the portfolio has beaten the MSCI Europe index since its inception. The fund’s assets under management stood at €1.3 billion at end-2015.
The theme and approach were replicated when it launched its global fund — the CPR Global Silver Age — a portfolio of about 120 stocks with €25.6 billion under management as at end-February.
Meanwhile, Amundi launched the Amundi Asian Silver Age Fund in Singapore last year. Investing in Asia-Pacific (including Japan) stocks, the fund’s top holdings are Toyota Motor Corp, AIA Group and Japan-based Astellas Pharma Inc.
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