Eryk Bagshaw

There’s money to be made out of an ageing population, and investors would be wise to look to the companies that will provide the goods and services that an older demographic will demand in the coming years.

There is a silver lining to Australia’s rapidly growing ageing public profile, part of a trend that could be worth up to $US15 trillion ($16 trillion) worldwide, and includes locally listed names such as AMP, Challenger and Cochlear, a new report by Bank of America-Merrill Lynch has found.

The new study outlines the three cradle-to-the-grave sectors set to benefit from a rush of “silver dollars” courtesy of an ageing population. They include pharmaceuticals and healthcare; financial services, including insurance and wealth management; and consumer industries such as travel and leisure.

“We believe that the global dynamics of ageing mean that the longevity theme offers numerous growth opportunities for those [firms] with exposure,” said BoA global strategist Sarbjit Nahal.

In Australia, the Intergenerational Report projects that over the next 40 years the proportion of the population aged over 65 years will almost double to around 25 per cent.

“This is a permanent change. Barring an unprecedented change in fertility rates, the age structure of the population is likely to stabilise with a far higher proportion of older Australians,” the IGR report said.

Across the world the number of people over the age of 60 is expected to move from 841 million in 2013 to 2 billion by 2050, according to the United Nations.

“Pharmaceuticals and healthcare companies with involvement in areas such as Alzheimer’s, dementia, cancer and cardiovascular disease are well placed to benefit from longevity,” said Mr Nahal.

Among the companies well placed to benefit from this theme, Mr Nahal identifies stem-cell therapy business Mesoblast, Primary Health Care (owner of 87 medical centres across Australia), and Ramsay Health Care, which runs private hospitals in Australia and overseas.

Hearing aids will also boom in the coming decades, the BoA strategists argue, a potential boon to Australia’s largest manufacturer of cochlear hearing aids, Cochlear.

Australia currently has the sixth-highest hearing aid penetration rate in the world. Industry analysts Sonova and Amplifon estimate the global hearing aid market will grow by 2.5 per cent per annum in volume, “driven by the ageing population, increasing noise pollution, developments in digital technology and wider acceptance due to cultural changes”.

The spending power of consumers aged 60 year or older is expected to reach $US15 trillion globally, according to Euromonitor.

“In addition to having unprecedented spending power, they are also extremely open to marketing and media, making them an attractive consumer demographic” said Mr Nahal.

Flight Centre Travel Group is tipped by BoA to be in a position to take advantage of high-flying, big-spending, package-tour pensioners.

Results from the group show half-yearly net profit up 14.1 per cent, with shareholders receiving a 19 per cent rise in interim dividends, although a recent profit guidance update suggested some cyclical softness in earnings.

“In our view a number of stocks are well placed to benefit from the theme of longevity via financials,” said Mr Nahal. “Through their involvement in areas such as insurance, reinsurance, asset management and wealth management, among other areas.”

Australia’s AMP and Challenger have also made BoA’s list of well-placed stocks. Annuity firm Challenger converts accumulated super wealth into income streams for retirees; its stocks have boomed this year, up 97 per cent.

The challenge for pension funds in the future is going to be managing the risk that payments are made longer than anticipated, due to the enhanced longevity of an ageing population.

“Longevity risk will likely be one of the most significant challenges facing retirement systems over the next 50 years,” said Mr Nahal.

Part of that longevity will come out of the success of governments in managing aged care and quality of life for older Australians in the years to come. Australia’s age-related ranking, which measures the country’s management of ageing, is currently 14th in the world. New Zealand sits at No. 4, while perennial quality-of-life victors Sweden and its Scandinavian neighbours sit at the top of the table.

Source: AFR.com

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