Golden years

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June 21, 2021

 

Four key themes underpin the current generational change towards an older, yet healthier world population, says Newton portfolio manager Yuko Takano.

Some surprising facts about aging:

  • At US$59 trillion, US baby boomers hold more than ten times as much money as the amount held by a comparative number of US Millennials. (Source: Visual Capitalist, US Federal Reserve, accessed June 7, 2021)
  • In the US, over-55s accounted for more than 40% of all consumer spending in 2018 (up from 27% in 1988). (Source: BLS; Newton Investment Management analysis, 2019.)
  • In China, the number of over- 60s is projected to increase from 214.7m in 2015 to 361.6m by 2030. To put that into some kind of context, by 2030 there will be more Chinese people over 60 than people living in the US.

Old age is opportunity dressed in different clothes.1 So goes one saying about getting old – and for the current generation of septua-, octo- and nonagenarians that certainly rings true.

Today, many of the physical and cognitive limitations traditionally associated with increased longevity are in retreat. Chronic diseases – particularly those linked to lifestyle choices – can be prevented, lessened, or managed. Gene therapy and other medical advances (note the recent US FDA approval of a new treatment for Alzheimer’s, for instance) are also helping to write a new chapter in elderly healthcare.

In many parts of the world, today’s oldsters are wealthier too. With baby boomers estimated to control more than half of US household wealth2, the Dickensian stereotype of superannuated scrimping and saving is long gone.

So what does this mean for investors? For Takano, the story is overwhelmingly a positive one, with structural tailwinds playing a large part in the narrative.

The chief of these, she notes, is how life expectancy will continue to climb in the coming decades. Consider the following:

  • The average life expectancy across both sexes had risen from 53 years in 1960 to 72 by 2016.
  • Forecasting out to 2030, it is probable that male and female life expectancies will grow further to 80 and 83 years, respectively.
  • Life expectancies have increased across all income groups globally as health care becomes more accessible and affordable.
  • Meanwhile, global fertility rates have fallen from a high of five children per woman between 1950 and 1955, to less than 1.9 children per woman today.

To respond to this picture of an older, yet healthier, world population, Takano highlights four core themes she believes will play well now and in the decades ahead: care and support, financial security, health innovation and living better.

Care and support

On the first of these sub-themes, Takano points to a plethora of opportunities in community, hospital and longer-term care settings designed to improve wellbeing for older people.

“We’re likely to see an 86% increase in the number of care-home places needed in the UK to accommodate what is among the most advanced aged populations,” she notes. “Total public spending on longer-term care currently accounts for around 1.6% of GDP on average across the OECD3; but by 2060 we believe this could nearly double to 2.8%.”

Takano notes the US is one of the most mature markets, with 40% of all over-65s likely to enter some form of care home or assisted living; this compares to the OECD average of just 12%. “With the global senior housing/nursing home market estimated to be valued at around US$438.5bn, we expect the total addressable market to grow in coming years,” she adds.

Live long and prosper

Finance is another area of expected growth, according to Takano. “As populations age, financial-planning solutions will become increasingly important for retirement provision, health-care financing, intergenerational wealth transfer, and funding leisure pursuits in retirement,” she notes.

Here, a large and expanding savings gap – not just in developed markets but in emerging economies too – will be a catalyst. With global dependency ratios4 continuing to climb as society ages, the onus will then be on private life and health insurers to allocate capital towards preventative care, while wealth managers will have a key role in offering effective full life-cycle planning products.

“More mature end-markets are already committing significant capital to private savings solutions but there’s also huge growth potential among developing economies as incomes per head continue to climb,” says Takano. “Insurance penetration is significantly lower in parts of Asia than in developed markets – 2.4% across Asia relative to the 7.5% penetration in Europe – though this is set to expand.”

Innovation in health care

The third sub-theme highlighted by the Takano captures those companies with exposure to emerging trends in innovative medicines, devices and diagnostics, data-driven personalized care, regenerative medicines and services, and robotics.

“Focusing on regenerative medicines, more solutions are in development that offer the potential for improved vision, pain management and easier mobility – an important requirement for an aging population,” Takano notes. “We estimate the global regenerative medicine market could be valued at US$66bn by 2022, with an annualised growth rate of 20% or more.”

A design for life

The fourth and final theme focuses on quality of life. Here, the rise of the silver dollar (the spending power of older cohorts) will be the driving force, with senior citizen fun and self-fulfilment the overriding goals.

“In the US, 90% of the growth in the time spent in sports and outdoor activities will come from those aged over 65 – unburdened by work, retirees have more money and time to spend on leisure activities,” concludes Takano. “Companies in the home improvement and renovation space could also experience tailwinds from increased spend by pensioners who wish to ‘age in place’ rather than move to retirement homes.”

1 “For age is opportunity no less
“Than youth itself, though in another dress,
“And as the evening twilight fades away
“The sky is filled with stars, invisible by day.”
Morituri Salutamas ― Henry Wadsworth Longfellow

2 Source: Visual Capitalist, US Federal Reserve, accessed 7 June 2021

3 Organization for Economic Co-operation and Development, an association of 36 developed and developing countries dedicated to global economic development.

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