Al-Amin Miah, Research Associate at MainStreet Partners

The world is currently experiencing a demographic shift with an ageing population and declining fertility rates. This demographic change presents both challenges and opportunities for asset managers. It brings opportunities to not only tackle a world where population growth is on a negative trajectory but also benefit from sub-themes such as healthcare, artificial intelligence, robotics, education and technology/ innovation.

Based on data from MainStreet Partners 2023 ESG Barometer report into the status of the European funds market, published in February, it’s clear that some asset managers are already using demography as a basis for thematic products.

Two strategies that aim to capture this theme are certainly “Ageing population” and “Megatrends”. The “Ageing population” strategy focuses purely on companies that benefit from the ageing population trend, such as healthcare and insurance companies, while the “Megatrends” strategy focuses on companies that benefit from several different long-term trends, also including the ageing population.

Demographic Changes

 According to research, the world population grew at its fastest pace during the ‘baby boomer’ generation, with an average increase of 2.1% per year in the years 1962-1965. However, since then, the growth rate has been declining due to reduced fertility levels. In 2020, the rate of population growth fell below 1% for the first time on record.

The United Nations estimates that the world population will reach approximately 8.5 billion by the end of 2030, 9.7 billion in 2050, and a peak of around 10.4 billion during the 2080s. The population is expected to taper off to a stable size by 2100.

The demographic shift towards an ageing population is a global phenomenon, with some regions and countries experiencing more significant impacts than others. The demographic shift is already affecting some key emerging regions of the world, such as Latin America, due to the increase of the dependent population, which influences the labour market and state pension considerations. This is notable as emerging regions have helped to drive global growth in recent decades.

Taxpayers may bear an increasing economic burden with a growing retired population, which is then exacerbated if coupled with declining immigration rates. This effect is most likely to be seen sooner in Europe, especially West and Northern Europe, as the demographic transition is expected to impact these highly developed regions first. Japan and Germany are two examples of countries that are already experiencing a negative population growth rate, and this trend is expected to continue in the coming years.

Healthcare and Beyond

For asset managers, one of the most significant sub-themes that emerge from an ageing population is healthcare. As the population ages, there will be an increased demand for healthcare services and products. The increasing number of elderly people in the population will also lead to a rise in chronic diseases such as cancer, dementia, and cardiovascular diseases. This creates a growing market for healthcare companies, which will need to adapt to meet the evolving needs of this demographic.

Moreover, there has been an increase in interest in the ageing population theme, as evidenced by the growing number of thematic products focusing on this area. In response to this trend, asset managers are looking to invest in healthcare companies that provide products and services tailored to the elderly population. These include companies that produce medical devices, home healthcare services, or assisted living facilities.

In addition to the healthcare sub-theme, asset managers are also exploring other areas such as artificial intelligence, robotics, education, and technology/innovation. As the population ages, there will be a growing demand for products and services that cater to this demographic, which will create opportunities for companies in various industries to develop innovative solutions.

Quality of Life

Aging is a complex process, and as people age, they may face challenges related to physical health, mental health, social isolation, and economic security. Where longevity solely focuses on the life span of an individual, quality of life can be measured in terms of living conditions, physical health, mental health, social relationships, level of independence, economic security, safety, or basic human rights. Rather “successful ageing” than just “ageing”.

A key component for any fund manager to consider when applying the trend of an ageing population and increased longevity, is to develop an understanding of products and services that aid in improving the quality of life and not just focus on longevity outputs.

Investment Themes versus Trends

In the context of value finding for constructing a portfolio, it is important to note that while certain thematic ideas may have worked well in the past, there is a risk of overreliance on them in the future. Market conditions and consumer preferences are constantly evolving, and what worked in the past may not necessarily work in the future.

Instead, it may be more prudent for fund managers to focus on developing new secular growth themes that are aligned with emerging trends and challenges. By focusing on new themes, fund managers can identify companies that are well-positioned to take advantage of these trends and have the potential to generate sustainable growth over the long term.

Moreover, investing in new secular growth themes can also help diversify a portfolio and reduce concentration risk. Diversification across different sectors and themes can help cushion the impact of any potential downturns or volatility in specific industries or regions. As such, fund managers should seek to identify new thematic ideas that are aligned with emerging trends and that have the potential to generate long-term value for their clients.