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 face of ageing is changing
According to K Kinsella & Y J Gist in their report, Older Workers, Retirement and Pensions in 1995, for the US Census Bureau, Sweden took 85 years (1890 to 1975) to double its population aged 65 and above, from 7% to 14%; Australia, 74 years (1938 to 2012); the US, 68 years (1944 to 2012); the UK, 45 years (1930 to 1975); and Japan, 26 years (1970 to 1996).
In contrast, China will only take 22 years to double its ageing population (2001 to 2023); Singapore, 20 years (2007 to 2027); South Korea, 18 years (1999 to 2017); and Vietnam, 16 years (2020 to 2036).
Such data have enabled companies to change their business models to be able to benefit from this trend, says Ahmadi. “Last year, a US-based multinational consumer goods company produced more diapers for the elderly than for children. Now, some companies have made diapers that even analyse urine.”
He stresses that ageing is no longer only about “people waiting to die” or services such as nursing homes and pharmaceuticals. “It is absolutely the contrary. It is a second chance to life that starts when we turn 60 or 65, when we retire. This was not the case 50 or 60 years ago, when people were preparing to die. At 65, my grandmother stayed at home and didn’t go out in much. Now, people in France play tennis and ski at 65,” he says.
“If you have children, you know that they will live longer than you. You also know that you will live longer than your parents and you will live differently. It is vibrant because there is no going back.”
Ahmadi says the team took three months to thoroughly research the industry just to understand the depth and breadth of the theme before launching the fund. “We went through a lot of statistics to understand the consumption patterns of the ageing population,” he adds.
“To understand ageing, you have to divide the population into two segments — those above 65, whom we refer to as young pensioners or future retirees, and those above 80, whom we refer to as the elderly. The two segments have absolutely different needs.
“When you are 65 and retired, you have spare time, you are in good shape and you have money, which is quite natural after a lifetime working — your savings are at their highest point. What do those in this category do with their time and money? They travel, spend quality time and more.”
CPR identified eight thematic sectors: leisure, pharmaceuticals, asset gatherers, healthcare equipment, dependency, wellbeing, security and automotive. The leisure sector makes up the largest portion of the Silver Age Fund at 23.35% on Jan 29.
Apart from spending their hard-earned cash on travel, the older population, both men and women alike, also want to look young and stay healthy for as long as possible, says Ahmadi. “They take care of themselves and their appearance. Personal grooming products and services are a part of this sector, ranging from cosmetics to spas.”
The automotive sector is another significant component. Ahmadi says the research shows that 55% of all new cars in the world are sold to people above the age of 52 and this figure is getting higher every year.
Citing the OECD discussion paper, he says in New Zealand, those over 50 are responsible for purchasing 45% of all new cars sold and 80% of top-end cars. This age group is also responsible for 35% of total travel and 80% of all cruise bookings.
All the technological progress in the automotive sector has been done to integrate the needs of the elderly population, says Ahmadi. “Now, you can park your car without having to touch the steering wheel. Last December, Peugeot Citroën did its first driverless vehicle test from Paris to Bordeaux, covering more than 500km.
Sectors such as dependency and security cater more directly to the needs of the elderly. “By security, we don’t mean a dog patrolling the garden, but visual vigilance. There are companies making infrared cameras that can detect when an elderly person falls. Then, an alarm can be triggered, notifying the right people to come his aid.
“We consider this the economy of ageing. It is an evolving one. Three years from now, if a company invents a phone with big buttons and other features for the elderly population and that makes up 80% of its business, we will bring it in,” says Ahmadi, when asked about the criteria for stock selection.
“Another example is a listed Belgian real estate company that used to have offices and shopping malls all over Europe. But in the last 10 years or so, it has bought into the real estate of institutions that provide nursing [care]. While it yields slightly less, at 4% to 4.3% on average for the next 18 years, it is done [for exposure to the sector]. So, it is completely transforming the business.”
Ahmadi says robotics is a sector it is thinking of bringing into the fold as it is evolving rapidly. “We are at a very early stage of development and cannot call it a proper sector yet. But we have taken into our universe a Japanese company which builds exoskeletons that assist the elderly and disabled to move. We will continue monitoring the development of the sector since it is one of the more promising ones.”
Taking into consideration that people are now living longer, aged individuals want to grow wealth and accumulate assets in the best way possible by using the services of private banks, life insurance companies and asset managers. However, the strategy is affected by market routs. Ahmadi says the fund house has added defensive stocks in sectors such as dependency, which includes nursing homes, as it is less volatile.
“We have reduced our holdings in asset gathering because it is very sensitive to market directions ... we are not very huge risk-takers, and we just want to be conservative,” he adds.
Being less risky does not mean that the strategy delivers lower returns or is not as risky as other themes, says Ahmadi. “Boring is beautiful. Why? Simply because people think they cannot make money out of this. They think, it is something that doesn’t go up 40% in a year, so it is not worth it. But that’s why this is undervalued,” he adds.
“We have been able to get through the last six years. When the markets were bull markets, we outperformed them. In the last six years, we have had them all — extremely bull markets, extremely bear markets, going-nowhere markets…”
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