You’ve undoubtedly heard that people around the world are living longer. Next Avenue often publishes pieces about global aging, including the post I just wrote: How Increasing Longevity Will Shape Our World, featuring four of Next Avenue’s 2015 Influencers In Aging. Fine, fine, you say, but how do I make money from this trend?
Taimur Hyat, chief strategy officer at PGIM — the $963 billion global investment management businesses of Prudential Financial — may have the answer for you. Actually, a few answers.
Hyat and his PGIM colleagues have published a fascinating report on the subject, A Silver Lining: The Investment Implications of an Aging World, based on interviews with PGIM investment pros; new proprietary research on consumer spending and meetings with industry experts in tech, life and actuarial sciences, venture capital and demography. Its conclusion: “Investors should consider capitalizing on the opportunities arising from this unprecedented global demographic shift.”
By the end of this decade, the spending power of consumers aged 60 and older will hit $15 trillion globally, up from $8 trillion in 2010.
I interviewed Hyat about the findings at the 2016 Milken Institute Global Conference in Los Angeles last week. “We are very long-term investors and one of the best ways to do that is by finding out excess investment returns in longer-term structural trends,” Hyat told me. “You can set your watch to them. And aging is one of them.”
For proof that global aging is a certifiable trend with investment opportunities, the Silver Lining report cites a few noteworthy statistics:
- Life expectancies have risen from a global average of 49 in 1955 to 72 today
- By 2040, the global population of those 65+ will reach 1.3 billion, double what it is today
- The over-80 age group is expected to more than triple in absolute size over the next 35 years, rising from 1.7 percent of the population to 4.5 percent by 2050
- In developed countries, those 65-and-over now outnumber those under the age of 15 for the first time
- By the end of this decade, the spending power of consumers aged 60 and older will hit $15 trillion globally, up from $8 trillion in 2010
- U.S. consumers over 55 spend twice as much as Millennials
Little wonder, then, that there’s now an Aging Population ETF (exchange traded fund) in the works from ETF sponsor Global X. According to its prospectus, the ETF plans to seek investment results that correspond generally to the price and yield performance of the Aging Population Index. (Global X just launched an ETF investing in Millennial trends: Millennials Thematic ETF.)
So where exactly does PGIM think you should put some of your money to profit from all this? Its report points to five investable themes in the broad areas of real estate and health care and technology: Multifamily condos; senior housing; urban life sciences clusters; pharmaceuticals; and biotech and technology-enabled medical services and devices.
“Two things stuck out at us as we looked at all the data on aging,” said Hyat. “One was the amount of elderly people in emerging markets. The other was, and this is especially relevant to the United States, there’s been a lot of focus on Millennials, but they control only a tiny percentage of wealth and spending. Over 50 percent of wealth and spending is concentrated among people in the boomer bracket and to a large extent, they define which sectors do well.”
But Hyat offers one big caveat: “Each of these trends has a different lifespan. You don’t want to go in too early or too late.”
Here’s why PGIM sees profit potential in real estate and health care and technology and how you can piggyback on that:
The PGIM report notes that real estate represents more than 40 percent of gross assets of households headed by those aged 65 or older in major developed markets like the U.S. and the U.K. “As these older cohorts grow in absolute and relative size, they will reshape the type, functionality and level of demand for real estate in their home markets,” it said.
In particular: growing demand for independent living communities, assisted living communities and nursing homes. “Our investment managers are investing a lot in senior housing,” said Hyat. “We see some large opportunities there.”
One reason, according to the report, is that this trend is fairly impervious to the ups and downs of the economy: “The decision to move into independent or assisted living is typically driven by lifestyle and health issues, and, as such, unrelated to the broader business cycle,” it said.
How you can get in on the action: Invest in stocks known as REITs (real estate investment trusts, which are companies that own and often operate income-producing properties). “For individual investors, REITs offer the most viable way due to their high diversification, liquidity and size,” said Hyat. They’re similar to real estate mutual funds except funds also buy other types of real estate-related stocks.
Some REITs are dedicated to the senior housing space or invest heavily in it. Hyat wouldn’t name specific REITS (“I’m uncomfortable giving advice,” he said), but a few REITs I found that do invest in properties for older Americans: LTC Properties (stock symbol: LTC), Senior Housing Properties Trust (symbol: SNH); Ventas (symbol: VTR); HCP (symbol: HCP) and Sabra Health Care REIT (symbol: SBRA).
Health Care and Technology
Noting that “the bulk of health care spending occurs in old age,” the PGIM report said that Americans over 85 spend twice as much on health care as those 65 to 84, who in turn spend double the amount of 45- to 64-year-olds. What’s more, it noted, “while life expectancy is increasing around the world, so too is the rate of chronic illness.”
Hyat told me: “We think the entire health care and medical sector will grow; this is a blunt way to play aging.”
That said, PGIM believes there are “nearer term” opportunities (pharmaceuticals and biotech) and “medium to longer term” ones (aging-related technology solutions).
In pharma and biotech, Hyat noted, “asset managers are targeting companies developing cures for things that particularly affect the elderly: things like dementia, Parkinson’s and cancer.” Gains will “likely be substantial for biotech firms that successfully bring their products to market,” the PGIM report predicted.
As Next Avenue has noted, Silicon Valley is beginning to turn its attention to developing apps and tech-based services for the elderly. AARP just held a competition wholly devoted to new caregiving technologies.
“The first wave of tech and apps was designed with Millennials in mind — pizza delivery and Uber,” said Hyat. “The next wave of platforms and technology will be designed with the needs of the elderly in mind. We’re already beginning to see this as a nascent opportunity.”
A few examples he cited: emergency response pendants; smart pill boxes so people know which medicine to take when and “retractable tripods to help you get up if you fall.” (Such a tripod was the winning design in last year’s Stanford Longevity Design Challenge for college students.)
But, Hyat conceded, “silver tech” won’t be an investable opportunity “for a couple of years.” He calls this “an exciting opportunity that’s a little further out.”
How you can get in on the action: “There are some health care funds and ETFs,” said Hyat. You can find a list of the funds at the Morningstar site and the ETFs at the ETFdb site. The health funds include BlackRock Health Sciences Opportunities, Fidelity Select Biotechnology, Fidelity Select Health Care and Vanguard Health Care. The ETFs include iShares Nasdaq Biotechnology ETF, Vanguard Health Care ETF, iShares U.S. Healthcare ETF PowerShares Dynamic Pharmaceuticals Portfolio ETF and Fidelity MSCI Health Care Index ETF.
Also, Hyat noted, “individuals can buy into public companies that are targeted at specific diseases.”
For now, however, silvertech investing is pretty much limited to venture capital and private equity firms. But, predicts PGIM, “there will be an increasing opportunity, over time, to access these technology firms in the public markets as well.” So prepare to open your wallet when the time comes.