Every tenth person in the world today is over 60. By 2050, it’ll be every fifth, and those over 60 will outnumber children under 15, according to the UN’s latest ageing report.
We’re living longer, but a greying world means retirement homes and drugs for millions, vast social care provision and gravity-defying exoskeletons, a booming pensions market and the funding for it – and the hope of innovation in each.
This means rising longevity offers tremendous investing potential, with plenty of sectors doing exceptionally well on the back of growing legions of, often wealthy, older people. Here are some suggestions.
“Healthcare” is a broad church when investing around the theme of ageing – ranging from oncology firms to joint makers. But where can you find a particular upside? Darius McDermott, managing director at Chelsea Financial Services, says healthcare consumerism is one place to look, with firms making money undercutting the public sector. “A vial of flu vaccine in the UK costs about £5. By the time you’ve booked an appointment, sat in a doctor’s waiting room and seen a nurse for the jab, it costs the NHS about £25.” In the US, firms like CVS offer walk-in jabs for $20. In the UK, you’ll pay £12.99 at Boots, £10 at Lloyds and £9 at Tesco and Sainsbury’s.
Even in countries where private medical insurance is the norm, health consumerism should grow. “In the US, it’s really big for the expenses, as you pay the first $4,000-5,000 yourself,” explains McDermott. And with standard doctors’ appointments costing between $100 and $200, it’s easy to see why flu jabs are popular. “We’re starting to see this in the UK too,” he points out – people will pay money to beat the queues and get a convenient appointment.
Meanwhile, things are starting to happen in sexier sectors like 3D printing, which many believe will revolutionise accessibility and assisted living. There’s the printed Haptic Headband, which enables you to navigate surroundings acoustically; and 3D printed wheelchairs. There are regulatory constraints around using the technology in some areas of healthcare – 3D printing will help doctors visualise complex medical problems, for instance, but the regulators have extensive guidelines on doing so – but “it will surely be used more and more in the future,” says McDermott.
Investors do need to be careful, though, says Paul Derrien, investment director at Canaccord Genuity Wealth Management – certain healthcare sectors can be considerably affected by governmental whim. “Political agendas can have a major impact on the valuations of pharmaceuticals ahead of the Presidential elections. There was certainly a sharp post Trump election healthcare rally.” (Remember the short-term free fall in January when he said that pharma and biotech were “getting away with murder”?)
But long-term, says McDermott, this “is a great area to invest”. Chelsea’s favoured fund is Polar Capital Healthcare Opportunities.
Made In China
Another way to think about healthcare is to think country-specific. China is unusual: it is ageing more rapidly than most emerging markets and, like developed countries in the same situation (China also has a burgeoning middle class), it is ramping up spending on healthcare. “China in particular is spearheading the emerging market healthcare revolution,” said UBS’s Carl Berrisford in his 2017 Year Ahead.
In one of the most ambitious healthcare reform programmes in history, it’s targeting a seven-fold increase in medical spending from 2011 to 2020. “This would imply a 26 per cent compound growth rate over the coming five years, turning China’s healthcare market into a $894bn industry and, in essence, doubling the size of the entire emerging markets healthcare sector from today’s valuation.” This, said Berrisford, will be a boon for private hospital groups, pharmaceutical firms and ambulance services.
Chinese equity funds like First State Greater China Growth, which has a 10 per cent weighting to Chinese healthcare stocks, often focus closely on a few well-run companies with widely differentiated products and services. First State Greater China Growth manager Martin Lau invests specifically in those he believes could benefit from rising healthcare and welfare spending. Analysis by Hargreaves Lansdown shows the fund has grown 226.9 per cent over the past 10 years compared with 149.3 per cent for the average fund in the Greater China sector.
Although many of the businesses buoyed by ageing populations are predictable, there are some more unusual firms that come out of the woodwork, too. “Playing the ageing population trend helps us identify structural growth stories against a backdrop of modest economic growth,” says Johan Utterman, co-manager of Lombard Odier’s LO Funds – Golden Age, which has outperformed the broader market over the last five years.
Utterman looks for stocks that stand a good chance of outperforming because they have higher organic sales growth. He highlights Henry Schein, the world’s largest provider of dental and veterinary products. The company uses an enormous distribution network to get over 300,000 different products to customers. Utterman says the firm is an example of “capitalising on the fact that the elderly need more dentistry and spend more money on their pets”.
Ageing and often wealthy populations are helping plenty of sectors grow, like financial services, travel companies and consumer staples. Lombard Odier picks out St James’s Place, the wealth manager, as a firm that, because of its focus on saving for retirement, is “well placed to take advantage of an increasing number of retirees who are planning their finances. It is growing much faster than the broader market.”
Playing the venture card
If you’re willing to take on more risk, much of the potential upside lies with the firms at the forefront of technology and R&D, many of which are still startups – take Alphabet (Google)-backed Calico, which looks into the causes of ageing and how to lengthen the human life span. But there are also public exoskeleton firms like Rewalk Robotics, Cyberdyne and Ekso Bionics Holdings.
When it comes to biotech funds, McDermott is particularly keen on Axa Framlington Biotech and Polar Capital Biotechnology. “You don’t need to be clever [in this sector] – there are so many opportunities emerging in sometimes very obvious places. For example, in the UK, many GP surgeries are still only accepting telephone appointments. It’s only very recently that some have started to invest in the technology to enable patients to book appointments online.” And many startups have gone further, like Babylon and Push Doctor, which allow patients to hold GP appointments online via a video link – invaluable if it’s difficult to leave the house.
There is a “however”, though, as biotech funds can be pretty volatile. Axa Framlington Biotech, for instance, has an FE Trustnet risk rating of 216, which compares to a FTSE 100 aggregate score of 100. Derrien says that, as a business, they have considered a number of more specialist biotech funds to complement broader healthcare funds.
“However, it should be noted that, in the chase for higher returns, there has been an overlap of holdings in some of the larger funds. This makes them a little more volatile in market declines, in what we hope would be a more defensive sector – so this is always something to keep an eye on.”
This article appears in the latest edition of City AM's Money Magazine, released with the paper today.