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How to profit from an ageing population without investing in healthcare

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19/08/2015
We are all living longer. According to World Health Organisation figures, a girl who was born in 2012 can expect to live to around 73 years, and a boy to the age of 68. This is six years longer than the average global life expectancy for a child born in 1990. 

By 2035, there are expected to be 500 million more people over the age of 65 in the world.

One obvious area to be impacted by a larger, older population is healthcare.

For investors, this could be a prudent space to allocate money.

There are several pure play healthcare funds available to UK retail investors including Polar Capital Global Healthcare Growth and Income and AXA Framlington Health.

However, there are other, perhaps less obvious, ways to exploit the ageing population theme.

Of course, medicine and health services become more important with age, but today’s retirees are a cash-rich group of consumers who are healthier and living longer, giving them more time to spend money.

If you are interested in playing this escalating demographic theme, here are three funds to consider:

Lombard Odier Golden Age fund

This fund was launched with the sole purpose of taking advantage of the ageing population theme. It currently invests in healthcare stocks but also financials and consumer staples.

Holdings include Royal Caribbean, the cruise line operator, St James’s Place, a wealth management firm specialising in pension planning, Dignity, the funeral services firm, and Smith and Nephew, a manufacturer of hip and knee replacements.

Manager Johan Utterman uses Japan as a ‘think tank’ to identify the types of companies and sectors that benefit most from the ageing population trend.

“When it comes to an ageing society, Japan is around 35 years ahead of the UK,” says Utterman.

“As a result Japanese companies have a head start in turning their products and services to older customers.”

Target Healthcare REIT

This real estate investment trust buys and leases care homes in the UK. With the number of over 85s – the prime users of care homes – predicted to double in the next 20 years and treble in the next 30 years, according to Age UK, the demand for this type of property is set to soar.

Investing in care homes has in the past received negative headlines thanks to the high profile collapse of Southern Cross. This trust’s income stream, however, comes from rental income rather than profits of the operating business.

“If profits drop, we still get rent,” says managing partner, Kenneth MacKenzie.

The trust aims to pay a dividend of 6% per annum.

Artemis Global Select fund

Although this global fund does not invest exclusively in ageing demographic-related companies, the manager invests in in a truly thematic manner.

Nearly 19% of the fund is allocated to the healthcare sector, and in particular to some large pharmaceutical names. However, the managers prefer to invest in companies that reduce costs in healthcare systems, for example generic drug manufacturers and distributors.

“Essentially cheaper generics should benefit from austerity in the developed world and increasing demand for affordable treatments for pain and antibiotics in the emerging region,” says Victoria Hasler, head of research at Square Mile Investment Consulting and Research.

The managers have recently increased the portfolio’s exposure to a related theme, retiree spending power.

“They have opened positions in a range of companies set to benefit from the increase in healthier and wealthier retirees who have both the time and money to enjoy holidays and leisure activities,” Hasler adds.

Stocks include a cruise liner, a clothing company specialising in outdoor apparel, a sporting brand and one of the world’s largest providers of bicycles and related apparel.

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