Ageing population: When a major demographic trend becomes an investment opportunity

Jonathan Boyd
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Ageing population: When a major demographic trend becomes an investment opportunity

At Generali Investments we believe it is important to focus on relevant structural trends and investment themes, presenting a growth potential that is largely driven by real economy factors.

Two years ago, the Generali Investments SICAV (GIS) SRI Ageing Population sub-fund launched, combining our proprietary SRI (socially responsible investing) framework with the long term demographic theme of the ageing population trend. Indeed, by 2040, the worldwide population aged 60+ is expected to more than double, reaching almost 2 billion people (a growth of +2.5% annually over the period).

An ageing population is undoubtedly a huge challenge for societies but it also represents an enormous market and investment opportunity as seniors – the “Grey power” – hold an increasing proportion of global revenues.

Longevity, as an investment theme, presents clear opportunities for companies well positioned to benefit from this structural demographic and economic change. Indeed, over the coming years, ageing population related market segments such as oncology* (+8.8%), anti-agers* (+6.9%), global pensions & savings assets (+6%) or even dental implants (+8.2%) are expected to show a higher and less volatile growth respective to that of the overall economy.

To capture those opportunities, we decided to focus on three thematic investment pillars (with their sub-segments):

Healthcare: valuations became attractive after a difficult 2016 impacted by investors’ concerns about pricing pressure and uncertainties around the US presidential election. 2017 was quite different: pharmaceutical companies have in their pipeline – as well as in their ongoing clinical trials – drugs which, in our view, will support positive earnings growth over the coming years.

In addition, the Healthcare sector also comprises companies specialised in Medical Equipment and Services – dental implants, hearing aids or diagnostics for instance. Med-Tech players do benefit from an ageing population and are less sensitive to concerns over pricing. Furthermore, many European companies within this industry are global leaders thanks to their innovative products, showing an annual growth rate close to +10% and strong profitability levels.

Pensions & Savings: an ageing population drives higher demand for life insurance and pensions related products. Indeed, with the gradual retreat of publicly funded retirement systems individuals increasingly need private pensions solutions. Furthermore, companies within this investment pillar do benefit from the increasing interest rates environment. Over the past months, the prospects of stronger economic growth, higher inflation expectations and a shift from monetary to fiscal policy drove interest rates upwards, which is very positive for financial companies’ earnings and valuations.

Consumers: seniors have specific needs in terms of products and services, whether it is in the leisure sector (cruise operators), safety (retirement homes, alarm systems), or luxury for instance (higher average expenditure per senior person compared to the overall population). This thematic pillar also covers companies catering for the “well-being” of future seniors, so as to prepare for a longer and healthier life.

We are also convinced that using our ESG (environmental, social and governance) approach in the context of the ageing population theme creates additional value for investors: the mid to long-term approach of Socially  Responsible Investing has indeed clear synergies with the demographic shift’s time horizon, as well as with our low-turnover and high conviction investment approach.

Companies with a sustainable development policy and a sound governance structure are more likely to be rewarded by their customers and present lower risks for investors. Having a dedicated team of SRI analysts with a proprietary methodology is a real value-add for the fund managers.

At Generali Investments we demonstrated, over the past two years, that combining the ageing population theme with our SRI approach and with the alpha generation from our fund managers made a great deal of sense, delivering a strong over-performance compared to core European equity indices.

* Expected annualised growth rate, 2016-2020

Web: www.generali-invest.com

GIS SRI Ageing Population is a subfund of Generali Investments SICAV (an investment company qualifying as a “société d’investissement à capital variable” with multiple subfunds under the laws of the Grand Duchy of Luxembourg) managed by Generali Investments Europe S.p.A. Società di gestione del risparmio. The information contained in this document is only for general information on products and services provided by Generali Investments Europe S.p.A. Società di gestione del risparmio. It shall under no circumstance constitute an offer, recommendation or solicitation to subscribe units/shares of undertakings for collective investment in transferable securities or application for an offer of investments services. It is not linked to or it is not intended to be the foundation of any contract or commitment. It shall not be considered as an explicit or implicit recommendation of investment strategy or as investment advice. Before subscribing an offer of investment services, each potential client shall be given every document provided by the regulations in force from time to time, documents to be carefully read by the client before making any investment choice. Generali Investments Europe S.p.A. Società di gestione del risparmio, periodically updating the contents of this document, relieves itself from any responsibility concerning mistakes or omissions and shall not be considered responsible in case of possible damages or losses related to the improper use of the information herein provided. Past performance is not a guarantee of future performance and the sub-fund presents a risk of loss of capital. No assurance is released with regard to the approximate correspondence of the future performances with the ones above mentioned. It is recommended to look over the regulation, available on our website www.generali-invest.com. The client shall carefully read the KIID, which must be delivered before subscribing the investment, and the prospectus which are available on our website (www.generali-invest.com), on Generali Investments Luxembourg S.A. (Management Company of Generali Investments SICAV)  website (www.generali-investments-luxembourg. com), and by distributors. Generali Investments is part of the Generali Group which was established in 1831 in Trieste as Assicurazioni Generali Austro-Italiche. Generali Investments is a commercial brand of Generali Investments Europe S.p.A. Società di gestione del risparmio.