Making Money from the Elderly: A Lucrative Prospect for Investors

 

Making Money from the Elderly: A Lucrative Prospect for Investors

Aging is an unstoppable trend that presents a unique investment opportunity. Governments may change, technology will advance, and fashions will come and go, but one thing remains certain: the world is growing older. By 2050, the United Nations predicts that 16% of the global population will be over 65, up from 10% today. In Europe and North America, this figure is expected to reach 27%. For investors, this long-term growth trend is one to bank on.

The Healthcare Sector: A Profitable Beneficiary

The healthcare sector stands out as a prime beneficiary of an aging population. In 2021, global healthcare spending amounted to $9.8 trillion, more than a tenth of the world's economic output, according to the World Health Organization. It's no surprise that the sector constitutes nearly half of BlackRock’s iShares Ageing Population ETF, which has yielded an 8.3% return over the past year, just shy of its benchmark.

The healthcare universe is vast, encompassing pharmaceuticals, implant and device manufacturers, and providers of eye and dental care. For instance, Novo Nordisk has seen significant success with its anti-obesity treatment and is also a key player in diabetes and cardiovascular treatments, both of which see higher incidences as people age. US-based companies like Pfizer and Bristol Myers Squibb are similarly focused on these age-related diseases.

Challenges and Innovations in Pharmaceuticals

Despite the promise, old age has yet to witness a breakthrough akin to Novo Nordisk’s Ozempic. Alzheimer's disease, which affects 55 million people globally, remains a tough nut to crack, with many drugs failing in phase 3 trials. However, there is hope. Eli Lilly recently received unanimous endorsement from the FDA advisory panel for its donanemab treatment, bringing it closer to US approval. Japan’s Eisai and US-based Biogen also made headlines with Leqembi, a drug that slows cognitive decline, now approved in the US, Japan, and China.

Medical Devices: A Safer Bet?

Medical devices might appear a safer investment compared to pharmaceuticals. With more people requiring knee replacements and hearing aids, the demand is robust. But there are also risks in this industry. Legal issues, such as those faced by Johnson & Johnson’s DePuy Synthes over hip replacements, pose risks. Additionally, the lack of repeat customers can limit growth. For example, UK-listed Smith & Nephew's shares have fallen by around 20% over the past year, despite maintaining full-year revenue growth guidance of 5-6% and a trading profit margin of 18% or more.

Beyond Healthcare: Financial Services and Consumer Products

The aging trend extends beyond healthcare. Financial services and hospital care providers, such as UK-listed Spire Healthcare, are also in play. The overworked NHS has helped Spire, but the company has had trouble luring investors and is currently trading below its competitors.

Consumer products tailored to the elderly are another growth area. In Japan, adult diaper sales have outpaced baby diapers for over a decade at Unicharm. This year, Oji Holdings ceased its domestic baby diaper business to focus on the burgeoning adult market.

A Broader Perspective: Leisure and Entertainment

Not all aspects of aging are grim. The S&P US Retiree Spending Index highlights the spending power of baby boomers on housing, transport, entertainment, and leisure, sectors that have seen a slight uptick over the past year, though still outpaced by the aging population index.

Conclusion

Investing in the aging population is not just about capitalizing on healthcare needs. It's about recognizing the broader economic shifts and opportunities that an older demographic presents. From pharmaceuticals and medical devices to financial services and consumer products, the aging trend offers a diverse array of investment avenues. By understanding and strategically investing in these areas, investors can secure long-term growth and returns.

FAQs

1. Why is the aging population considered a long-term investment trend?
The aging population is a predictable demographic shift with significant implications for various sectors, ensuring long-term growth opportunities for investors.

2. Which sectors benefit the most from an aging population?
Healthcare, financial services, and consumer products tailored to older adults are among the primary beneficiaries.

3. What are the risks associated with investing in the healthcare sector?
High failure rates in pharmaceutical trials and legal challenges in the medical device sector are notable risks.

4. How can consumer products companies capitalize on the aging trend?
By focusing on products that cater to the needs of the elderly, such as adult diapers, companies can tap into a growing market segment.

5. Are there positive aspects to investing in the aging population?
Yes, sectors like leisure and entertainment benefit from the spending power of older adults, highlighting the diverse opportunities within this investment trend.