Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 426

Three demographic themes shaping investments for the future

With significant demographic shifts occurring around the world, one useful approach for investors is to use demographic themes and trends as a compass for future investing.

Focussing on companies that will benefit from slow moving, long duration and highly predictable demographic trends can help investors predict areas of future opportunity.

There are three main themes that stand out – an aging population, population growth, and a growing middle class. The long-term implications of all three are far-reaching.

Longevity and aging population

A quick look back at history offers a guide to how much older society is becoming, and how quickly. During the Roman empire, the average life expectancy was only 25 years. Life expectancy then increased to 33 years in the Middle Ages, with a big jump to 55 years in the 19th century.

More recently, the average life expectancy across the globe has increased to 72 years, with the Western world at 80 years and Japan at 84. Dutch scientists expect that in 50 years’ time, life expectancy might reach over 125 years.

At the same time, the overall population itself is becoming, on average, older. For the first time in human history, people older than 60 will soon outnumber 15-year-olds and younger. This has profound implications on how people are spending, which in turn has repercussions for what industries and companies will succeed over the longer term.

Population growth and shift to the middle class

There are noticeable shifts within this population growth. We are at a point where, for the first time in human history, the number of people in the middle class will make up the majority of the population.

From an investment perspective, this means that the level of household wealth is, on average, rising globally.


Source: www.gapminder.org.

This increase in household wealth is noticeable in Australia, particularly due to the effects the pandemic and Australia’s reaction to it, with household savings levels reaching historically high levels. The US and China are still the two largest economies in the world, but even with the pandemic downturns in 2020, Australia is now the 13th largest economy in the world, overtaking the likes of much bigger countries such as Spain. Australia is still a country with just 25 million people, making it comparatively rich on a per capita basis.

Movements from cities

Another shift that is a direct result of the pandemic is the significant change in where people choose to live. For many decades there has been a one-way movement from regional and country areas into Australia’s cities. However over the past 18 months there has been a trend of younger people, particularly millennials moving away from the cities and into the regions, creating a property boom in these areas.

Younger people are looking for a lifestyle change and prioritising more space for their young families. Some potentially are wanting to get away from the spread of Covid in the higher density city areas, which of course bring more lockdown measures. Regional housing is also cheaper for younger people and ‘working from home’ measures have allowed younger people and families to work from the regions, rather than just commuting to the city.

Opportunities for investors

Some of the industries that are set to grow from these demographic shifts include healthcare, technology, and logistics, which will offer attractive opportunities for investors.

For example, since more people are working from home and living outside of the cities, the warehousing and logistics sector is set to grow even further. Although shops are closed, people are buying just as much as ever, but consumption is moving online, driving demand for more warehouses and delivery services. Therefore, quality logistics and freight companies that have a good geographic range through warehousing and distribution centres, along with a wide range of delivery capabilities, display a good pipeline of growth.

Another industry set to grow is healthcare, specifically technological advancements in healthcare due to the aging population.

As people age, they have different healthcare needs, ranging from hearing aids, hip replacements, glasses, certain drugs, or heart operations. For example, eyesight declines with age, so the eyecare sector is likely to grow. The increased use of screens and electronic devices is also having a negative impact on eyesight. Out of a global population of 7.6 billion, it is estimated that 60% of people need eye correction, but only 40% are getting it done. So, the opportunity here is set to expand. For investors this means finding healthcare opportunities that seek to improve patient care through leading niche technologies that are already out in the market.


Register here to receive the Firstlinks weekly newsletter for free

The aging population creates more people needing surgery. This is where technology advancements in healthcare come in through the likes of robotic surgery. The use of robotic surgery allows for treatment in a minimally invasive manner. The benefits of this are greater accuracy, lower complication rates, and ultimately, reduced days in hospitals, which saves the healthcare system money.

The healthcare industry is expected to innovate more to get ahead of any future variants and other viral infections. Innovation in the case of Covid-19 and other viral infections can open a new world of opportunities for investors. Investors can put money behind companies to help accelerate these treatments, while allowing these companies to bolster their cash flows, in turn, creating a solid investment.

Therefore, there is ample amounts of opportunity to invest in a more dynamic future through changing demographics. Industries of healthcare, technology, and logistics, along with many more, will thrive from these demographic trends.

For investors, a good place to start is with those companies where a significant proportion of value creation comes from demographic factors. 

 

Aneta Wynimko is Co-Portfolio Manager, Fidelity Global Demographics Fund at Fidelity International, a sponsor of Firstlinks. This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL 409340 (‘Fidelity Australia’), a member of the FIL Limited group of companies commonly known as Fidelity International. This document is intended as general information only. You should consider the relevant Product Disclosure Statement available on our website www.fidelity.com.au.

For more articles and papers from Fidelity, please click here.

© 2021 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL Limited.

 

1 Comments
Andrew Smith
September 26, 2021

Good article agree with the themes presented, one would add that more older people could choose higher density living in inner city or CBD apartment (with security, access to services etc.) and many people do not realise the emerging mass of middle classes in African nations too (with slowing fertility).

Related, the analysis is correct that defies the 'zeitgeist' in (only) Australia over imagined and misinformed 'infinite exponential population growth due to (undefined) immigration', also based on global forecasts based round inflated fertility from the UNPD and their 'nebulous' NOM (used only in Oz, NZ and UK?) which does not stand up to close scrutiny (not even measured in many nations e.g. EU Schengen Zone).

Recently, Nikkei Asia came out with article based on research from the University of Washington, 'The new population bomb: For the first time, humanity is on the verge of long-term decline' (22 Sep '20); like Bricker & Ibbitson researchers/writers of 'Empty Planet' who claimed UNPD future fertility rates are inflated and that after mid century peak a precipitous decline, but most think more a gradual flattening out (be lucky to reach 8 billion as fertility may be peaking now).

In Australia obsessions with immigration, NOM and population growth have helped with FIRE or property market PR 'prices always go up', nativist post '70s political agitprop and an excuse to avoid constraints on fossil fuels vs. blaming via a ZPG Zero Population Growth prism, humanity in the developing world.

 

Leave a Comment:

     

RELATED ARTICLES

10 investment themes for the next 10 years

5 new trends driving the future of biotech companies

Many people misunderstand what life expectancy means

banner

Most viewed in recent weeks

10 little-known pension traps prove the value of advice

Most people entering retirement do not see a financial adviser, mainly due to cost. It's a major problem because there are small mistakes a retiree can make which are expensive and avoidable if a few tips were known.

Check eligibility for the Commonwealth Seniors Health Card

Eligibility for the Commonwealth Seniors Health Card has no asset test and a relatively high income test. It's worth checking eligibility and the benefits of qualifying to save on the cost of medications.

Hamish Douglass on why the movie hasn’t ended yet

The focus is on Magellan for its investment performance and departure of the CEO, but Douglass says the pandemic, inflation, rising rates and Middle East tensions have not played out. Vindication is always long term.

Start the year right with the 2022 Retiree Checklist

This is our annual checklist of what retirees need to be aware of in 2022. It is a long list of 25 items and not everything will apply to your situation. Run your eye over the benefits and entitlements.

At 98-years-old, Charlie Munger still delivers the one-liners

The Warren Buffett/Charlie Munger partnership is the stuff of legends, but even Charlie admits it is coming to an end ("I'm nearly dead"). He is one of the few people in investing prepared to say what he thinks.

Should I pay off the mortgage or top up my superannuation?

Depending on personal circumstances, it may be time to rethink the bias to paying down housing debt over wealth accumulation in super. Do the sums and ask these four questions to plan for your future.

Latest Updates

Investment strategies

Three ways index investing masks extra risk

There are thousands of different indexes, and they are not all diversified and broadly-based. Watch for concentration risk in sectors and companies, and know the underlying assets in case liquidity is needed.

Investment strategies

Will 2022 be the year for quality companies?

It is easy to feel like an investing genius over the last 10 years, with most asset classes making wonderful gains. But if there's a setback, companies like Reece, ARB, Cochlear, REA Group and CSL will recover best.

Shares

2022 outlook: buy a raincoat but don't put it on yet

In the 11th year of a bull market, near the end of the cycle, some type of correction is likely. Underneath is solid, healthy and underpinned by strong earnings growth, but there's less room for mistakes.

Gold

Time to give up on gold?

In 2021, the gold price failed to sustain its strong rise since 2018, although it recovered after early losses. But where does gold sit in a world of inflation, rising rates and a competitor like Bitcoin?

Investment strategies

Global leaders reveal surprises of 2021, challenges for 2022

In a sentence or two, global experts across many fields are asked to summarise the biggest surprise of 2021, and enduring challenges into 2022. It's a short and sweet view of the changes we are all facing.

Shares

2021 was a standout year for stockmarket listings

In 2021, sharemarket gains supported record levels of capital raisings and IPOs in Australia. The range of deals listed here shows the maturity of the local market in providing equity capital.

Economy

Let 'er rip: how high can debt-to-GDP ratios soar?

Governments and investors have been complacent about the build up of debt, but at some level, a ceiling exists. Are we near yet? Trouble is brewing, especially in the eurozone and emerging countries.

Sponsors

Alliances

© 2022 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.