The Silver Economy : when seniors ensure growth

China’s seventh census has shed even greater light on how much its population is ageing and how much its demographics are shifting. So, this is a good opportunity for another look at the growing potential of the megatrend that is the ageing of the population.

CPR AM has addressed this investment theme since 2009, and, through its “silver Age” range of funds, currently has a total of almost €3.5 billion invested in it, a sign of the amount of interest in this attractive strategy. In this article, we look into the economic interest of ageing as an investment theme, Covid’s impact on it, and CPR AM’s unique approach to it.

Global populations have tended to age in recent decades, due to declining birth rates and longer lifespans. This has resulted in a significant increase in the percentage of elderly persons in the population, as seen in the chart below. For the first time, the percentage of the population older than 60 is greater than the percentage younger than five. This trend is projected to continue.

Ageing of the population is already at an advanced stage in Europe and North America and is accelerating rapidly in the rest of the world. In 2050, 50% of all persons older than 65 will live in emerging market countries. Moreover, retirees are expected to make up more than 30% of the populations of China, South Korea and Japan by 2060.

As a result of this societal change, the working-age population is shrinking. It had peaked at various times in different countries, but is now shrinking very rapidly, including in China. In G7 countries, for example, the population younger than 60 is either shrinking or about to. In contrast, the population older than 60 is expanding relatively fast, which, in turn, is providing support for the economy.

Seniors are the wealthiest and fastest-growing segment of the population. To cite one example, the “economic contribution” of Americans older than 50 was $8,300bn in 2018, which would make them, taken alone, the world’s third-largest country¹.

The fact that seniors are more and more numerous suggests that their aggregate income is rising far more rapidly than other population groups. For example, aggregate income of persons older than 64 rose by 119% from 2009 to 2019, vs. 69% for those aged 55-64, 52% for the 25-34 group and 45% for the 34-44 group.

The sharp increase in net worth during the Covid crisis, in the US in particular, has focused on seniors far more than other age groups, thus giving them comfortable purchasing power. Some 29.1% of the $18,418bn increase in Americans’ net worth between Q4 2019 and Q1 2021 was by heads of households older than 70, and 35.6% by those aged 55 to 69, although they account for, respectively, just 15% and 24% of the population older than 20. The share of aggregate net worth of those older than 70 even hit an all-time high in Q1 2021 of 26.8%.

The Covid crisis has also accelerated seniors’ adoption of digital technologies, which is opening the door to wider acceptance of new services for seniors, such as remote medical assistance and reduced isolation, thus allowing them to stay autonomous for longer. Seniors had already been adopting new technologies for several years, but the Covid crisis has accelerated the trend. The American Association of Retired Persons (AARP) reports that “Compared to 2019, the pandemic has likely led to an exponential increase in spending on technology products, from $270 to $972 annually for persons older than 70”.

Perceptions and experiences of retirement have changed. Recent retirees want to stay active and healthy and find new ways of self-fulfilment.

The senior-based economy is non-cyclical and targets long- term returns. Within this theme, we see growing interest in leisure, medical services, cars, nutrition, sports and technology.

CPR AM’ “Silver Age” investment strategy focuses on consumption of specific goods for two types of consumers – recent retirees who are still active and are likely to buy houses and cars, and to travel; and persons older than 80, who generally are more focused on the sectors of security and dependence. The goal is to exploit the strong potential growth of this full and autonomous ecosystem. This theme benefits from a constantly rising demand and an undeniable intrinsic growth.

The investment universe includes only those companies at least 15% of whose activities are linked to the senior-based economy. It is split into eight dimensions that help create a diversified portfolio investing in various aspects of older persons’ consumption. Each of these dimensions has its
own characteristics, based on investment factors, sensitivity to shifts in interest rates, differences in
consumer behaviours, purchasing power, etc. This approach allows CPR AM to exploit various market phases. In addition, CPR AM applies ESG criteria through a robust in-house methodology.

Silver Age is naturally 50% invested in healthcare, a non- cyclical sector that is accordingly more resilient to economic downturns. The healthcare sector includes pharmaceuticals and medical equipment. The pharma industry is emerging from a 10-year period during which investors have rerated its productivity and R&D quality. Moreover, the quick reaction to the Covid crisis, the new technologies used, and solid pipelines of new products suggest that we are at the advent of a new cycle of innovation that will generate strong growth.

Meanwhile, the medical equipment sector is booming, driven by technological and scientific advances in recent years. Medical equipment ranges from simple disposable gloves to highly complex devices such as artificial heart values and robot operating systems. These new technologies are essential to enhancing health in general and to saving or extending lives, or, more generally, reinventing healthcare systems while reducing overall spending for both patients and medical professionals. 

Lastly, the financial savings sector, which includes all savings in life insurance, pensions, retirement funds and retail investment services, is riding the strong economy. Not only are balance sheets solid and multiples reasonable, but the sector is also riding expectations of higher interest rates for the coming months.

In terms of performance, the strategy has been boosted by the new paradigm of higher interest rates and the return of value investing, which had stalled for almost 15 years. Performances are approaching those of the market at large, with positive projections for the coming months. The Silver Age funds combine a value approach (stocks that are historically undervalued and offer great potential from
Covid-related innovations) with reopening-exposed leisure stocks, as well as the medical sector, which is being driven by the rescheduling of elective surgeries. All these factors will provide a boost to the fund.

Moreover, the fund has no energy or US big tech stocks,which, over the past year, have out performed the marketby far, thus demonstrating the theme’s potential and the solidity of fund management.

So, ageing is a forward-looking theme that is resilient in various global phases while offering sustained growth potential for the future. Despite a year marked by the Covid crisis, the senior-based economy is a fast-growing market that addresses a society in transformation, and is benefiting from greater awareness of health issues by everyone. This theme is of interest to all of society, as the new  generations will be the “Silver Economy” of tomorrow.

1. AARP, American Association of Retired Persons 2019