Profit from the power of the grey pound
Higher life expectancy and surging asset prices have proved a boon for the baby-boomer generation, which has accumulated vast wealth. Younger generations can benefit too, says Matthew Partridge
“Will you still need me, will you still feed me, when I’m 64?” asked The Beatles in their 1967 song. Today vast numbers of over-65s are being needed and fed. They comprise the biggest and one of the wealthiest demographic groups in the developed world.
This creates a challenge for governments, especially when it comes to grappling with their increasing demands on health and social care. However, it also represents an opportunity for industries that can find a way to take advantage of the increasing economic power of the “silver” pound, dollar or yen. Here’s how to profit.
People are getting older and richer...
David Morrison, senior market analyst at trading platform Trade Nation, notes that the mounting clout of the over-65s is down to two factors: demographics and wealth. In terms of demographics, increased life expectancy, the postwar baby boom and birth rates that have fallen below replacement level (the fertility rate that will result in a stable population) are all key.
As a result of these trends, both the absolute number of over-65s and their share of the population have risen significantly over the past few decades. Despite Covid-19 disproportionately hitting the elderly, this demographic backdrop will endure over the long term.
For example, according to the Office for National Statistics, between 1967 and 2021 the proportion of the UK population over 65 has jumped from 12.5% to 18.9%, with the over-65s expected to account for a quarter of the population by 2050. The proportion of over-75s has increased even faster, nearly doubling from 4.52% in 1967 to 8.86% today.
While there are many poor pensioners, booming stockmarkets and soaring house prices have ensured that the average household headed by someone over 65 is worth nearly £700,000, more than double the average wealth of households headed by those between 35 and 44.
The UK is far from alone in seeing the proportion of older people increase at a rapid rate. “All through the developed world large numbers of people are hitting their mid-60s and retiring with large amounts of assets”, says Morrison.
In the G7, the group comprising the world’s seven biggest industrialised economies, the proportion of people over 65 ranges from 16.5% in the US to 21% in France, 22% in Germany and more than 28% in Japan. While the proportion of over 65s in work has increased, the vast majority of them are still retired.
... especially in Asia
Japan’s ageing population may be an extreme case, but everyone agrees that “there will be a much larger elderly population in Asia in the near future”, says Mike Shiao, chief investment officer, Asia ex-Japan, at fund management group Invesco.
He says data from the World Health Organisation suggests that “almost half a billion people in Asia will be aged 65 or over by 2025”. Indeed, declining birth rates and longer life expectancy means that experts are predicting that by 2049 “there will be more elderly than children” in the People’s Republic of China.
At the same time, the economic clout of what
Shiao calls the “silver generation” in China and other parts of developing Asia far outstrips that of previous generations. This is partly due to decades of strong economic growth, which has seen living standards soar – 54% of the global middle class now live in Asia. This figure is expected to rise to 65% by 2030, with those over 65 “expected to play a large role in the rise of the Asian middle class”.
However, the emergence of wealthy pensioners in emerging Asia isn’t simply a consequence of these countries becoming richer. As financial markets have become more sophisticated, so the opportunities for building and accumulating wealth have also expanded.
The last four decades of Chinese economic reforms in particular have given Chinese pensioners “much better opportunities” to accumulate wealth than previous generations because the range of assets that they can own has greatly expanded. According to Credit Suisse, the Chinese stockmarket is now the fourth largest stockmarket in the world.
Plenty of time to travel
One sector certain to benefit from a greying population is the travel and leisure industry. Those between 65 and 80 are generally well and energetic enough to focus on enjoying their retirement instead of worrying about their health, notes Trade Nation’s David Morrison.
This does not necessarily have to involve sedate activities – “if you have been skiing all your life, you will want to carry on with that” – which is good news for winter resorts such as those in the Swiss Alps or Vail in Colorado. Meanwhile, cruising remains extremely popular.
Simon Matthews, senior portfolio manager of NB Global Monthly Income Fund, is optimistic about the cruising industry. The last 18 months of restrictions have created “pent- up demand for sea travel after being cooped up at home”.
What’s more, most countries require people to take tests or even quarantine, but cruise ships allow their customers to “avoid the hassle of having to go though multiple airports to get to your destination and back”. He also notes that even during lockdowns “50% of customers elected to postpone and rebook rather than cancel their booking completely”.
In a sign that demand is bouncing back, Matthews notes that Carnival Cruise Line, one of the biggest operators in the cruise ship industry, estimates that two-thirds of its ships are now back in operation, and it hopes that this will rise to 75% by the end of the year.
Even better, average spend per visit “is definitely up compared with 2019”, which suggests that “when people are going out they are willing to put their hands in their pockets”. Finally, the industry should also
“People older than 65 will account for 25% of the population by 2050, up from 19% today”
benefit from a boom in the number of middle-class retired Asians going on cruise ships.
New developments in social care
Those between 65 and 80 may generally be focused on enjoying their retirement in the most active manner possible, but many over 80 will be increasingly worried about their health, especially those so frail that they find dealing with daily tasks difficult, says Morrison.
As a result, there are “a lot of opportunities” in companies that provide care homes and assisted living facilities, especially in the US, where listed companies operate a large number of chains (in the UK the sector is split between council-run homes and those owned by private equity groups).
However, care homes are not for everyone.
Many people are worried about the cost and losing independence, while the sector’s well-publicised problems with Covid-19 have damaged its reputation. As a result, there is clearly a gap in the market, which is starting to be filled, for retirement communities for people “who just need a bit of help”, rather than constant supervision.
Viewed as a middle ground between full-service care homes and solo living, they are aimed at people who want to “enjoy the companionship of people their own age, but also desire a greater degree of autonomy”.
Another option, especially attractive to those determined to avoid going into homes is in-home care, as the evidence clearly shows that “if you have someone coming into help then you can keep elderly people away from care homes much longer”. Already, several companies have sprung up in the US (and here) aimed at connecting people with medical advice and support 24 hours a day and seven days a week, either on the phone or online.
Kasim Zafar of EQ Investors thinks that technology has a role to play, with companies already working to develop robots that can provide companionship, while driverless cars can preserve the mobility of those uncertain about their driving abilities.
Popping pills
Even those receiving the best care are more vulnerable to illness and general ill health as they get older. So an ageing population inevitably stokes demand for drugs and medical treatments.
Jasveet Brar, manager of the M&G Better Health Solutions fund, notes that in the US the average person between 45 and 54 spends around $5,000 a year on healthcare. Those between 54 and 64 spend $7,700, rising to $11,300 for those in the 65-74 age bracket.
The US is perhaps an extreme example owing to the fragmented nature of its healthcare system, which has led to some of the highest costs in the world. However, Brar is in no doubt that all countries, whatever their systems, are going to face similar pressures as their populations age.
As a result, he predicts that there “is going to be a lot of demand for innovative technologies and
“The average American aged 6574 spends $11,300 a year on healthcare”
treatments that can help control costs”. While this will benefit all parts of the healthcare industry, drugs and biotech companies as well as those that make medical devices are likely to do particularly well.
With most elderly patients taking multiple drugs for various conditions, some with serious side effects, Brar thinks that there is a role for pharmacists who, as well as fulfilling prescriptions, can add value by helping healthcare providers manage drug regimes more efficiently.
For example, the American firm Tabula Rasa Healthcare has carved out a niche by devising software that helps doctors and pharmacists coordinate medication programmes and optimise dosage, and spot adverse effects.
Managing growing assets
While the over 65s may be more numerous and wealthier than ever, they are now required to take far more responsibility for their finances. This is particularly true in Britain with the demise of finalsalary pensions and regulatory changes over the last decade giving people more choice about what they can do with their money.
One of the most significant changes was the advent of “pension freedom” in 2015, which ended the requirement for people to use their pension savings to buy an annuity.
James De Sausmarez, director and head of investment trusts at Janus Henderson, thinks that the increasing amount of accumulated wealth has made people in the over-65 category far more interested in finding ways to ensure that their wealth is passed on down the generations to their children and grandchildren.
Naturally, while some people will enjoy becoming “DIY investors”, others may find it all too much, especially when it comes to issues such as inheritance. As a result, they “will look to financial advisors and wealth management firms for support”, says Matthew Tillett of the Brunner Investment Trust.
Firms that aim to simplify things by providing either “investment platforms”, such as Hargreaves Lansdown, or even more detailed “financial handholding” such as St. James’s Place, will do particularly well. Tillett acknowledges that there is a risk that digitalisation will hurt financial firms by driving down the cost of some services. On the other hand, it could also help entrench their position by creating economies of scale through large amounts of investment in technology and related infrastructure.
He also thinks that the industry benefits from several enduring advantages that deter potential rivals from entering the market. These include a high degree of regulation, large fixed costs and customers’ tendency in their sector to stick with their current provider rather than shop around for the best price.
All these mean “that the companies in the industry should not just experience high growth, but should also benefit from high returns”.
Finally, De Sausmarez points out that the rise of the silver pound is not only transforming the financial-services industry by changing how we invest, but also by influencing the types of things people invest in. Those who are retired tend to be more riskaverse and more focused on income than those who are still in work.
While people’s desire to pass on capital to their children and grandchildren means that they won’t abandon riskier growth shares completely, companies and trusts that can provide an income should become a lot more attractive in the medium term.
“Wealth managers providing ‘financial handholding’ are likely to do well”