Capitalising on ageing
The ageing theme was one of the topics highlighted at the Edhec-Risk Days conference in London recently.
People are living longer. This trend remains inexorable. So, how to benefit from ageing?
The theme was discussed by Vafa Ahmadi (pictured), head of Thematics Equities at CPR Asset Management and fund manager of CPR Silver Age, at the Edhec-Risk Days conference, which took place in London recently.
In December 2009 the firm launched a non-benchmarked FCP focusing on ageing, CPR Silver Age, with €895.61m of assets under management as at 31 March 2015.
“Statistics showed that the world’s population aged 80 or above is projected to increase by 252% between 2015 and 2055.* Also, the US ‘silver economy’ is already the third largest economy in the world and should keep growing,†” Ahmadi explains.
Other data provided in 2013 by the Eurosystem Household Finance and Consumption Network reveals that for individuals in Europe wealth is at its highest when the age of 65 is reached.
“When we launched the fund, the ageing theme was already significant. But the way the theme was considered at that time remained partial,” Ahmadi says.
“Some ageing funds were removed two years after their launch because they were looking at ageing only through pharmaceuticals as well as retirement and care homes.”
But from 2005 to 2015, seniors’ expenses in France were expected to increase and shift significantly, as calculated by the French research institute for the study of life conditions, Crédoc in 2006. Its report has notably predicted leisure would account for 57% of seniors’ expenses in 2015 against 49% in 2005.
CPR AM therefore favoured a multi sector approach with its ageing fund (well-being, asset gatherer-saving, dependency, security, leisure, pharmaceuticals and healthcare equipment).
“It gives us the ability to truly capitalise on all different aspects of ageing and hence the growth potential this theme is capable of,” Ahmadi argues.
A distinction has also been made between two populations within the fund. “Future and young pensioners, former baby boomers with relatively high purchasing power, are more concerned about leisure, well-being and asset gathering, whereas elderly people – over 80 – are more dependent – medical care – and vulnerable – security.
“Pharmaceuticals and healthcare equipment are common to both segments,” Ahmadi points out.
Top-down and bottom-up approaches were combined in order to identify around 200 stocks, of which nearly 60 are picked in the portfolio, which the manager notes as a reason the portfolio has beaten the MSCI Europe index since inception.
The theme and the approach has also been remoulded into a global portfolio, CPR Global Silver Age, of around 140 stocks and €20.27m of AUM as at 8 April 2015.
The ageing of Europe is also linked to ongoing changes to pension systems. However, Ahmadi estimates that any significant impact will not happen for another 10-15 years.
“If you look back 15 years ago, we were in a situation in which households had one pension only. Nowadays, we have more and more households with two pensions because women who started to work in the 1960s either are retired or will be soon.
“Consequently, the tax base from retired people has grown dramatically in the last 15 years. However, when those women who started to work in the 1960s and the 1970s retire, taxing pensions will really have an impact. But this will not happen for 10-15 years at least,” he asserts.
Other changes will occur in the ageing theme. Numerous companies are researching anti-ageing treatments, such as Google business Calico, which looks to biotechnologies that can achieve immortality.
“Perhaps we will be reaching heights we cannot suspect today and that will obviously change entirely the dynamic of certain sectors we are currently invested in. We keep this trend in mind and include it in our research.
“If some sectors demonstrate an important sensitivity to the theme of ageing in the near future, we will not hesitate to move on it.”
* UN data – Projections 2013 – Constant fertility.
† Oxford Economics.