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Should you invest in things that retirees buy, to fund your own old age?

Perversely, good investments may turn out to be in daycare and pre-primary schools for pre-school children.

It’s expensive to get old. We don’t know how long we are going to live for, or how much the costs of care or medical treatment might be.

According to latest statistics from Statistics South Africa, 8.13% of South Africans are over the age of 60, up from 7.07% in 2002 and we have a median age of 26.3 years. Compare this with Japan, where 33% of the population was over the age of 60 in 2014 and the country had a median age of 47.3 years. The world’s second-oldest population, as measured by median age is Germany, at 45.9 years and with 27% of the population over 60.

Might an investment into a basket of ‘grey’ investments be the call of the century? In the US (where the population over 60 is nearing 20%) the ‘baby boomer generation’ is in the process of retiring. Statistics from McKinsey & Company show that over-60s collectively control a significant amount of wealth and that by 2020 under-45s will hold just 11% of investable assets in the US.

EuroMonitor has estimated that the spending power of consumers aged 60-and-older will hit US$15 trillion globally in 2020 up from US$8 trillion in 2010.

Both Japan and Germany are living case studies on how resources will be reallocated as average ages increase. A central concern with ageing countries is the shrinking of the working-age population, as more adults retire and fewer children are born. Older adults are more likely to require additional medication, hospitalisation and frail care. In countries with social security systems, this translates into higher taxes.

When a book called ‘The 100-year life’ became an overnight hit, it was time to sit up and take note. Co-authored by two London Business School professors, the book was published in the UK in mid-2016 and sold modestly in the west. But when it was translated into Japanese (under the title ‘Life shift’) it stuck a nerve. The book’s central thesis is that individuals, governments and business should prepare for a time when more people will live to over 100. The book was the catalyst for Prime Minister Shinzō Abe to persuade the Japanese Cabinet to assemble a diverse group of academics, entrepreneurs and business leaders to form the ‘Council for Designing the 100-year Life Society’, which as of June 2019 had met eight times.

Under the guidance of the council, human resources development of Japanese citizens has taken centre stage. Over the two years, concerted efforts have been made to expand the number of people enrolling at universities. Night classes, weekend classes, and online courses have been introduced to ensure that university courses are accessible to full-time workers, women with children and those who cannot afford education. There has been a particular emphasis on creating opportunities for elderly Japanese people who wish to be ‘re-educated’ after the age of 65, in order to be able to carry on working to the age of 70.

New initiatives have been launched to support women in the workforce. These include eliminating childcare waiting lists, free pre-school education and increasing the numbers of contract carers so that employees don’t have to take time off to care for family members.

At the same time, Japan is taking active steps to harness artificial intelligence (AI). In 2016, Abe called for the Japanese government to establish an ‘Artificial Intelligence Technology Strategy Council’. This body launched an AI technology strategy in March 2017, which focused on promoting AI development and developing phases and priorities for industrialisation, including productivity, healthcare, and mobility.

It will facilitate sponsorship of research into technological solutions and robotic automation, designed to assist the elderly population to go about their daily business without depending on the (already-stretched) working-age population. Examples include investing in driverless transportation and healthcare communication technology aimed at streamlining and reducing healthcare costs.

Analysts are monitoring shifts in spending (both at government and individual level) in the face of changing demographics. An article in the Financial Times reported that in 2017, Japanese consumption expenditure rose most strongly in the over-59 age group. It said that while young Japanese are savers, older Japanese are spending more on meat, cars, smartphones and package tours. There have also been increases in expenditure on nursing homes, dispatch care givers and fitness aids for older people. How an ageing and rich population chooses to put its disposable income to work will have a material impact on the rise and fall of different sectors in the economy.

How do these spending trends translate into good ideas for an investment portfolio?

As the middle class in Asia becomes both older and richer, obvious calls might be investments in private hospitals, pharmaceuticals and home-based health-monitoring technology. The demand for any new non-invasive key-hole equipment, designed to minimise the after effects of cancer or heart surgery, is likely to increase. So too will any pharmaceuticals designed to prevent both the external signs of ageing, such as balding and age spots, or internal problems, such as joint pain, arthritis and cancer.

In addition, there might be increasing demand for healthcare-related property; specialist office space for one-stop-shop medical care (which provide facilities for out-of-hospital medical procedures), as well as specialised independent-living housing and frail-care homes for the elderly.

But not all of these will necessarily be good investments.

In South Africa, for example, any extra profits made by private hospitals due to increased length of stay, may be wiped out by possible regulated prices imposed by National Health Insurance. In the US, there is increasing sensitivity about the cost of prescription drugs, which are currently higher than anywhere else in the world (2016 OECD figures). As election rhetoric in the next US election heats up, tackling high drug prices would be an obvious vote catcher. This might lead to either regulatory intervention or shaming companies perceived to be too profitable.

While there might be great demand for specialist properties geared to the needs of ageing Americans, such as independent-living and frail-care units, these have to be built cost effectively, operated efficiently and with prices aligned with the disposable income of inhabitants to be profitable.

Perversely, good investments may turn out to be not retirement villages but daycare and pre-primary schools for pre-school children, as more working-age adults work longer hours to pay higher tax bills to fund the elderly.

Changes in society that have caused women to delay pregnancy and childbirth, such as IVF drugs, are likely to become more in demand. This may create a demand for AI-based scans, for gene therapy and genetic sequencing machines.

Historically, one of the main arguments for investing offshore from South Africa was to get exposure to those sectors where South Africa was under-represented, such as the pharmaceutical sector, the IT sector or the airline industry. In a low-growth world, the opportunity might not be a sector, but a demographic: the ageing rich.

Over the last few years, Rosebank Wealth Group has responded to client requests to seek out offshore investment opportunities that are likely to benefit from the changing demographics described in this article. This has led to company directors embarking on research trips to ‘kick the tyres’ of interesting property investments aimed at senior US residents in a number of US cities. Other opportunities have included identifying specialist health funds that identify innovative drugs and medical devices. We have also invested in a Japanese fund that is highly cognisant of the demographic play in Japan.

ADVISOR PROFILE

Trevor Lee

Rosebank Wealth Group (Pty) Ltd

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