UK’s growing number of centenarians offer attractive long term investment

With more than ten million people in the UK now expected to live to see their 100th birthday, astute investors could find changing demographics offer attractive long term investment opportunities, it is claimed.

While the downside factors of population ageing are well publicised, particularly in relation to the burdens imposed on many national governments, Fidelity International believes some of the benefits and opportunities afforded by the so called ‘silver economy' are less well appreciated.

Importantly, the retirees of today and tomorrow are richer, more educated, more active and more used to consuming than in the past. Some of the specific sectors likely to benefit from the trend of population ageing include healthcare and financial services.

Although people are living longer than in the past, the functionality of the human body inevitably declines over time, thereby increasing demand for healthcare services. Figures from the US Bureau of Labour Statistics shows how expenditure on health increases with age both in absolute terms and as a share of total income before taxes.

As more and more people move into older age brackets, both in the US and other developed countries, it is likely that total expenditure, both private and public, on healthcare will continue rising.

Fidelity says that population ageing is likely to be beneficial for product manufacturers and providers of healthcare services and facilities. More specifically, among drug manufacturers, the ageing process will naturally be most beneficial for those companies that are more targeted towards diseases that are more prevalent in older age groups.

The growing number of older people is a secular positive for several areas within financial services. In particular, as people become older their interest in and demand for both pre-retirement and retirement-related products and services tends to increase. Generally, this bodes well for asset managers, financial advisory firms and insurance firms that have a strong presence in the retirement and pre-retirement markets.

The pricing structure for many investment products and related services is often linked to the size of assets. This is important because, on average, asset sizes are likely to be higher in the future because of the increasing accumulated wealth of retirees, relative to past generations, and because increasing longevity in retirement will necessitate greater saving for retirement. For example, Goldman Sachs estimates that in the next four years alone total retirement assets in the US will grow by 40% to around $20.4 trillion.

Other sectors that are likely to gain from population ageing are more diffuse and less easily grouped into a single broad category. For example, more people living into old age will clearly be positive for firms that specialise in providing care services and assisted living facilities for the elderly.

Also, the retirees of the future will be more active and used to travelling for leisure, thereby creating opportunities within the travel industry; the cruise liner market, which already has a successful track record of targeting older age groups, could build further on this in the future. Older age groups tend to be more cautious and security conscious and this could be supportive of demand for companies that specialise in home and personal security technology.

‘Population ageing is one of the most important demographic trends in many Western countries and the developed world more generally. This is clearly having some negative economic results in terms of reduced working age populations and increased financial burdens for national governments. However, the increasing numbers of older people, the so-called silver economy, also offers some clear opportunities for investors,’ said Tom Stevenson, investment director at Fidelity International.