Funds cash in as Baby Boomers splash out
THEIR births heralded the longest phase of economic growth in living memory.
Now, 65 years on, wealthy Baby Boomers are doing the feeble global economy another good turn, say fund managers.
Millions of newly retired Europeans, North Americans and Japanese are breaking open bulging pension pots, spelling big profits for investors who can spot the companies best placed to cater to their spending habits.
A small but fast-growing class of mutual funds is buying shares in firms with most to gain from ageing populations, from drug maker Roche to Norwegian Cruise Line.
The subject may not be racy but the returns can be. Two of the biggest of these funds in Europe, Lombard Odier’s Golden Age fund and CPR Asset Management’s Silver Age fund, achieved respectively returns about double and four times the equivalent 13% of the Eurostoxx index since their 2009 launch.
“The over-65s tend to have much higher disposable income and part of the reason for that is because they had money invested in the stock market during the 1980s and 1990s, when shares were doing exceptionally well,” said Johan Utterman, portfolio manager of the Lombard Odier Golden Age Fund.
Similar funds in Europe include Schroder International Selection Fund Global Demographic Opportunities and, in Asia, the Chang Xin Jinli Equity Fund, which has about $900million (R8 918-million) under management.
CPR, while investing only in European equities, says the oldage theme is broad enough to allow a diverse portfolio. The fund considered buying some Japanese stocks, given that Japan has the highest proportion of old people.
“Other funds have attempted this, but typically had too narrow a way of looking at ageing,” said CPR Asset Management’s thematic and sector allocations fund head , Vafa Ahmadi.
Widening the net to the early retirement years enabled the fund to make leisure and savings stocks key portfolio themes along with pharmaceuticals, healthcare equipment and wellbeing, which includes cosmetics companies such as France’s L’Oreal and Germany’s Beiersdorf.
Beiersdorf, maker of Nivea face and body lotions, “understood as well as L’Oreal and perhaps better that they needed to provide something that was less top of the range in terms of price and which was focused on men”, Ahmadi said.
“This is what we like, when [the ageing trend] impacts the business model — you find real deposits of growth,” he said.
Demographically focused investments are a critical test of demand for thematic funds, many of which have struggled to attract US investors since the bursting of the dotcom bubble crushed various internetthemed funds.
But while the dotcom boom was a product of a particular period in time, the ageing process and the specific consumption patterns it promotes, are here to stay, fund managers argue.
“The UN has published several statistics that demonstrate how powerful the theme is,” said Utterman.
He said the population of people 65 or older was expected to rise at triple the pace of those aged 20 to 64.
The increasing popularity of ageing-related funds in Asia and Europe — albeit from a small base — also demonstrates the lure of a good narrative in selling funds, experts say.
This is especially true in an era when actively managed funds based on specific economic trends face growing competition from low-cost index tracker funds.
Assets under management at CPR’s Silver Age have jumped to à152- million (R1 962-million) from à93- million at the end of 2012, while Golden Age is running at about $300-million (R2 978-million).
But sceptics say limiting funds to a theme leaves managers’ hands tied if, for example, pharma stocks fall out of favour or oil drillers and utilities — which have no age bias — rally.
“While the economic or social shift might be very important and be reflected in stock prices and asset values, one can box oneself in by creating a fund dedicated to such a theme,” said Nicholas Lyster, CEO of Principal Global Investors (Europe).
“There is a danger that one is slave to the theme and buys a stock at any price,” said Lyster.
Popular wisdom counts death, and thus the ageing pro- cess, as one of the few certainties in life, but there are no guarantees that future retirees will enjoy the same sort of spending power as flexed by the Baby Boomers.
Savings rates have dwindled as living costs have increased, and the financial investments that make up the lion’s share of a retirement savings pot have been hit hard by years of financial crisis and global recession, experts say.
Data from the Investment Company Institute, based in Washington, suggests US retirees were broadly better off than younger members of the population in 2011, with 22% of citizens aged 18 or younger living in poverty compared with just 9% for those aged 65 or older.
But unless economic portents improve quickly, the opportunity to cash in on wealthy retirees may come and go within a generation, rendering some of these targeted business models obsolete. —