I was having my hair cut when I first heard the term. Roxanne (pierced nose, two years out of ‘uni’) was lamenting the cost of life in London as she wielded the scissors. ‘I had to borrow to put a deposit on a little place. And I’m only renting,’ she sighed. ‘And it’s only in Balham.’ Borrow from where, I asked: Barclays, Lloyds, Jimmy the Loan Shark? ‘Same as everyone else,’ came the reply. ‘The Bank of Mum and Dad.’
That conversation took place in 2006, two years before the financial crisis and four after the Economist ran a story titled ‘Over 60 and overlooked’. Why, it wondered, were so many businesses ‘obsessed with youth’, even as the fabric of society became older, greyer and — most importantly — richer than ever before? Why advertise to Roxanne and not to her mum and dad, with their lifetime’s worth of carefully accumulated spending and lending power?
Even now, the commercial world caters overwhelmingly to the fresh of face. Roxanne’s cohort may be cash-poor, but ads aimed at them bounce with vitality. Show a streak of silver in your hair, on the other hand, and you’re targeted by the same tired old products: cruise holidays, stairlifts and Michael Parkinson offering over-50s life insurance with a free pen.
Which is odd, given where the wealth lies. According to the Office for National Statistics, 51 per cent of people in UK households with upward of £500,000 in total wealth, including property, are aged 55 or over. Millionaires are overwhelmingly likely to be baby-boomers born between 1946 and 1964; 53 per cent of the nation’s wealth is owned by those aged between 45 and 64. George Osborne’s decision to ‘supercharge the grey pound’ by allowing over-55s to treat pension funds like bank accounts merely placed more cash into the hands of this most fortunate demographic.
More people across the western world are living longer and looking for wiser ways to spend and invest their money. Laura Whitcombe looks at some financial issues facing the baby-boomers themselves on page 14. For the rest of us, the key question is: how do we invest in their good fortune? With the FTSE becalmed, government bond yields at record lows and emerging markets stagnating, how can we profit from one of the world’s most promising asset classes?
A good place to start is Lombard Odier’s £325 million Golden Age fund. Overseen by a cheery Swede called Johan Utterman, the fund largely invests in listed firms — Dublin-based Medtronic and the American healthcare retailer CVS, to name two — that cater to those with second homes and creaky knees. To Utterman, the over-60s constitute ‘an expanding, cash-rich group of consumers, less sensitive (since most aren’t working) to the economic environment than the wider population. Businesses serving seniors should in theory grow faster and more sustainably than the rest of the economy.’
Utterman’s strategy seems to be working. His fund has returned 21 per cent to shareholders over the past 36 months, while the FTSE100 is back roughly where it started. He looks for anomalies and curiosities that others might have missed, such as the fact that baby-boomers spend at least as much on their pets as they do on their grandchildren, or that they watch 174 hours of television a month (63 per cent more than the 18–34 age range).
Then he identifies whether companies have adapted to demographic changes. The classic motorcycle marque Harley-Davidson once appealed to young hell-raisers. But its customer base has grown into middle age: the average first-time buyer is 52 years old, prompting the Milwaukee firm to manufacture ‘hogs’ with heated saddles and a reverse gear.
To guide his thinking about what products sell in an ageing society, Utterman flies east to Japan, where the average age is set to rise from 46 to a silvery 53 by mid-century. He points to Tokyo-listed skincare firm Pola Orbis as a classic success story: their anti-wrinkle cream, targeted at older Japanese women, ‘retails at $700 a pop’, he says, ‘and it’s flying off the shelves’.
Golden Age’s closest rivals include the Silver Fund, run by Paris-based CPR Asset Management, and Invesco Perpetual’s High Income fund, which is skewed heavily toward healthcare. Among individual shares that play to this theme, there’s wealth manager St James’s Place, a profitable FTSE100-listed firm with more than 500,000 clients holding an average of £250,000 in its funds: its services, including retirement and inheritance planning, are provided face-to-face, a considerable draw for less tech-savvy older customers.
An ageing society of course presents challenges as well as investment opportunities. Governments are having to price in rising pension costs and ever-increasing medical bills. Making ends meet either means raising taxes or allocating less money to education, defence and infrastructure.
Henk Grootveld, who runs the trends-investing equity team at Robeco, the Dutch asset manager, says the West faces a stark choice in the years ahead: ‘Either we muddle along and hope for the best, or we massively increase productivity through digitalisation, clever production, medical breakthroughs, robotics, artificial intelligence, and so on. And the latter path is going to have to be the one we choose. Investing in intelligently run firms actively seeking the best and most viable solutions to society’s challenges is going to be a really good bet.’
Proportion of UK wealth owned by 45-to-64-year-olds
Hours of television watched per month by baby-boomers
Size of the market for wearable medical devices by 2022
So where to start? The health industry abounds with buzzy new products whose efficacy and long-term impact is impossible for non-specialist investors to judge. One (expensive) punt on the next groundbreaking product could be shares in Alphabet, the holding company of Google, whose Google X research division targets ‘moonshot’ scientific and medical breakthroughs, expressly designed to help us live longer, healthier lives. These include a smart contact lens, developed with the Swiss healthcare giant Novartis, which will (among other things) measure glucose in the blood, alerting diabetics when their levels become dangerously elevated.
Then there is the burgeoning world of wearable technology. According to data provider Research and Markets, the global market for medical devices, apps and fitness bands that monitor vital signs, diagnose hypertension and obesity and combat chronic pain, will reach £20 billion by 2022. At the apex of this sector are firms ranging from Apple and Garmin to Fitbit and sportswear giant Nike.
If you want to plough your money into cutting-edge medical and pharma stocks, the US is the place to go. New York-listed Thermo Fisher Scientific offers a future in which synthetic biology will allow us to tinker with gene sequencing and biopsies for cancer screening become non-invasive. Nasdaq-listed Quintiles Transnational, based in North Carolina’s Research Triangle, is the world’s largest provider of bio-pharmaceutical testing services — the place other companies take their new drugs to be checked out.
These firms point to a future where ‘the focus of investment in healthcare will be not on curing people but on preventing people from getting ill’, says one private-equity executive. The idea of tampering with our genetic structure may feel unethical to many but it is a) inevitable, given our desire to live longer and tackle diseases that once seemed incurable, and b) an industry in which the UK has the potential to excel.
Identifying which company will invent a treatment that alters our sense of what it means to be old — a cure for Alzheimer’s, say — is, says Grootveld, ‘a big rat race. But we’re investing in that rat race, just as everyone else is. And it’s a race worth winning.’ The chance of picking a portfolio of winners in an arena where many ideas fail while others take decades to commercialise is, of course, slim. But get lucky — and everyone does if they live long enough — and you could enjoy a supremely wealthy old age.