In­vest­ing with mil­len­ni­als in mind

Daily Local News (West Chester, PA) - - BUSINESS - By Alex Veiga AP Busi­ness Writer

LOS AN­GE­LES >> Mil­len­ni­als have eclipsed baby boomers as the largest liv­ing gen­er­a­tion, and that rep­re­sents an op­por­tu­nity for in­vestors who can iden­tify com­pa­nies of­fer­ing the goods and ser­vices they want.

That’s the aim of the Global X Mil­len­ni­als The­matic ETF, an ex­change-traded fund launched in May that tracks com­pa­nies that de­rive a sig­nif­i­cant share of rev­enue from mil­len­ni­als, which Global X de­fines as any­one born be­tween 1980 and 2000.

“What we see is that mil­len­ni­als be­have dif­fer­ently from other gen­er­a­tions,” said Jay Ja­cobs, di­rec­tor of re­search at Global X, a $3.8 bil­lion ETF is­suer based in New York. “They do not spend in the same way as Gen-X or Baby Boomers, and that’s when it be­comes an in­vestible theme.”

Ja­cobs spoke re­cently to The As­so­ci­ated Press about how in­vestors can profit from fore-

cast growth in mil­len­ni­als’ spend­ing power in the years ahead. Ques­tions and an­swers were edited for clar­ity and length.

Q

: Why take this ap­proach of in­vest­ing in com­pa­nies that will ben­e­fit from spend­ing by mil­len­ni­als?

A

: We know the mil­len­nial gen­er­a­tion is the largest in the U.S. at about 90 mil­lion peo­ple. Right now their in­come is at about $2 tril­lion, but we

ex­pect over the next decade for that to quadru­ple to $8 tril­lion. There’s a mas­sive trans­fer of wealth that’s hap­pen­ing be­tween the Baby Boomers and the mil­len­ni­als. That could be an­other $40 tril­lion in as­sets go­ing to that gen­er­a­tion. So, in­creas­ingly what we’re see­ing is that mil­len­ni­als are be­com­ing the driv­ing con­sumer force be­hind the U.S. econ­omy.

Q

: What are some of the main at­tributes of mil­len­ni­als as con­sumers that helped you de­ter­mine which com­pa­nies to in­clude in the ETF?

: When you look at this gen­er­a­tion, they’re the digital na­tive gen­er­a­tion. They were ei­ther born into the digital age with com­put­ers or mo­bile phones. They’re the most ed­u­cated gen­er­a­tion. They’re the most di­verse gen­er­a­tion. This starts to in­flu­ence a lot of things when we look at their be­hav­ioral char­ac­ter­is­tics.

The big­gest driver is tech­nol­ogy. When we look at how com­pa­nies are added to this fund, the first thing we look at is where mil­len­ni­als are spend­ing money, what types of cat­e­gories.

Within those cat­e­gories we look at com­pa­nies that cater to those unique

spend­ing pref­er­ences. So, if you were to look at how they spend money on food. They’re a very tech-savvy gen­er­a­tion, so that means com­pa­nies that are in­volved in the on­line or­der­ing of food or peer re­view sites about restau­rants, those start to boil up to the top.

We have travel re­views and on­line book­ing sites, com­pa­nies in­volved in sell­ing tick­ets to con­certs and sport­ing events and on­line me­dia as well.

Q

: What kinds of com­pa­nies wouldn’t make the cut in the ETF?

A

: Lux­ury goods are just not a big part of

mil­len­ni­als’ con­sump­tion. The gen­er­a­tion is driven more by ex­pe­ri­ences than phys­i­cal goods. And a lot of this plays into the so­cial me­dia theme. So com­pa­nies that are in­volved in ex­pe­ri­ences are fa­vored over lux­ury goods com­pa­nies.

Q

: In ad­di­tion to the mil­len­ni­als ETF, you’ve also rolled out other “the­matic” funds based on the de­mo­graphic trends of peo­ple liv­ing longer and health and well­ness. Why is in­vest­ing in such funds a bet­ter op­tion than go­ing with a broader in­dex fund, for ex­am­ple?

: The­matic in­vest­ing is really about look­ing at macro-level trends and then find­ing the in­vest­ments that are poised to ben­e­fit from those.

If you look at broad mar­ket in­dexes right now, look at the S&P 500, val­u­a­tions are near his­tor­i­cal highs, and peo­ple are starved for growth op­por­tu­ni­ties. We be­lieve the way to find growth is you need to be more tar­geted and be more se­lec­tive on where to find it.

If you owned the Rus­sell 1000, you’d own pretty much ev­ery­thing in the U.S., but it’s about over­weigh­ing and tilt­ing to­ward the themes that really have bet­ter long-term po­ten­tial.

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