Sustainable demographic themes for investors
Two years ago, one of us spent several weeks in a Tuscan mountain village. On the third day there he recalls saying to his partner, “You know, it’s really strange… where are the bambini?!”
There were older people everywhere in the village, walking, shopping and chatting, but very few children.
In Italy in 1950, for every person older than 70, there were ten younger than 25. Italy was a young country. But Italians are living longer and fewer babies are being born, and today, there are almost as many old Italians as young Italians. Italy is becoming an old country.
This has huge investment implications. Most notably, older people spend differently to the young. For example, retired ‘baby boomers’ want stuff like cruising holidays, casinos, specialised fitness gear and good care homes.
Demography at work
Demography is slow, but enormously powerful in the long run. It can change societies dramatically over a generation or two, like it’s changing Italy right now.
Let’s look at three examples of how demography is changing the world:
1. Lifespans in India
In the year 1950, life expectancy in India was 37 years. Most people were poor and medical care was rudimentary. Today, they’re much better off, have better medical care, and can expect to live until they’re 69.
Think about it – in a country with 1.4 billion people, lifespans have risen by 32 years since 1950. That must be one of the all-time great human achievements.
And it’s changed India into a country of middle-aged people who are increasingly middle class too. For investors, it is one of the world’s giant markets.
2. Russia versus Nigeria
Half a century ago, during the Cold War, the Soviet Union was a superpower and a huge threat to the West. At its core was Russia, which at the time had about 130 million people.
But these days, Russia is not a superpower any more – partly because its population is falling.
Countries with ballooning populations like Nigeria or Indonesia are increasingly important. In 1950, there were two Russians for every Nigerian. Nigeria’s growing population passed Russia’s 15 years ago. By 2050 Nigeria will have well over twice as many people as Russia. And Nigeria is becoming a regional heavyweight.
China is a global superpower these days for two reasons: one, its population has soared over the last 70 years, and is now much higher than those of Europe and the USA together; and two, it has managed its economy exceptionally well.
But Africa’s population is now about the same as that of China – and by 2050, Africa will have far more people. If the countries of Africa can get their economic policies right, then they could be big winners in the next 20-30 years.
Demographic themes for investors
People are ageing everywhere, and patterns of population growth and stagnation mean that some countries and areas of the world are doing far better than others.
We have a population theme in the Sustainable Balance fund. This means favouring several investment ideas that have demographic tailwinds – particularly if we believe they will last for a long time.
Let’s look at two of these opportunities.
First, people who are getting older and whose incomes are rising want better healthcare, and more of it. This is a major drive in the rich countries – and increasingly important in the emerging markets too. People in China, India and Brazil also want the best healthcare available. Interesting areas here include drugs, care homes and medical insurance.
Global healthcare is likely to be a theme in the Sustainable Balance fund for a long time. Its healthcare holdings include AstraZeneca, the global pharmaceuticals company, which has a COVID-19 vaccine that is not overly cold-sensitive, which could give it an advantage in warmer countries.
As people age, paying for social care becomes a problem. The Sustainable Balance fund has a social bond fund that invests in health and social care and community services in the UK, aiming for investment returns with positive social and economic outcomes.
Medical advances mean that people with life-limiting illnesses are living longer, including very premature babies, often with disabilities. In the past they would have been in long-stay hospitals but UK policy is now to house in the community. Civitas, The Institute for the Study of Civil Society, saw that private capital could help and now provides homes for over 4000 vulnerable adults.
The number of over-85s in the UK will double in the next 20 years, creating a huge demand for care homes. COVID has shown that some older or converted properties are not ideal for old people. Target Healthcare is a care home owner that provides purpose-built accommodation with ensuite facilities, making it easier and safer to care for residents and control infection.
A second investment opportunity is emerging market cities. That’s where most of the world’s population growth will be in the next 30 years. And there’s lots on the go here, like housing projects, renewable energy in the tropics, clean water, and internet towers. There’s a huge demand for infrastructure, for example, in Africa and South Asia.
The Sustainable Balance fund has a debt fund that invests in sustainable issuers in emerging markets. It holds the debt of countries like Egypt and Ghana that meet its investment criteria. Ghana has made progress in developing a stable democracy with an independent judiciary. Ghana has become a pioneer in impact investing.