Global population is growing older at an unprecedented rate. The
number of persons aged 60 years or more worldwide is expected to
increase from 841 million in 2013 to more than 2 billion by 2050
and their share will almost double from 11.7% to 21.1% during this
time period, according to the UN's "
World Population Ageing
Aging is a global phenomenon and while most developed countries
already have relatively aged population, older population in
developing regions is now growing faster than in the developed
regions. In China, for example, the number of older people will
between 2012 and 2020. (Read:
Beat the Market with Fundamentally Strong ETFs
Declining fertility rates and rising longevity trends around the
world will likely pose some challenges for future economic growth
but at the same time they create some opportunities for investors.
Investors could consider ETFs that are likely to benefit from the
world's rapidly aging demographic trend. Most investors think
of healthcare focused stocks and ETFs but there are some other ETFs
too that will benefit from the 'silver' economy.
PowerShares Dynamic Pharmaceuticals Portfolio (
Within the broader healthcare space, I like pharmaceutical ETFs in
particular. They are well positioned to benefit from aging global
population and rising healthcare expenditure in emerging markets.
Further, they are generally less volatile than others in this
Pharmaceutical firms should also benefit from improving pipelines
and cost-cutting measures taken in recent years. (Read:
Who Wins the World Cup of ETFs?)
PJP's holdings are selected on the basis of a variety of investment
merit criteria, including price momentum, earnings momentum,
quality, management action, and value.
Well known pharma companies like J&J, Merck and Pfizer are
among its top holdings. These companies derive a significant
proportion of their revenue from international markets and stand to
profit from aging population and rising incomes in these markets.
In emerging markets, spending on healthcare is rising from rather
low levels compared to the developed world and has a significant
upside potential, benefiting these companies.
With its expense ratio of 63 basis points (due to enhanced indexing
methodology), this ETF is slightly expensive but it has justified
its higher cost with significant outperformance compared to its
SPDR S&P Capital Markets ETF (
The population is not only growing older but also wealthier. In
general, older people have more wealth at their disposal and they
continue to invest into old age. Per
, current assets under management globally are about $87
trillion-one year of global GDP. Based on current trends, this
number could reach $400 trillion by 2050. (Read:
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Rising investable wealth would work great for asset managers. In
fact, many asset managers have already seen an increase in retail
business versus institutional business. Many of them have
introduced new, innovative products targeted at older, wealthier
KCE tracks the S&P Capital Markets Select Industry Index,
holding 43 stocks in its basket. Asset management & custody
banks take the top position in the basket at 60% while investment
banking & brokerage takes the remaining share in term of the
With respect to holdings, none of the securities make up more than
3% share, lowering company specific risks. It charges an
expense ratio of 35 basis points and has a nice dividend yield of
2.3% currently. (Read:
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Safe, Dividend Paying Stocks: Vanguard Dividend
Appreciation ETF (
About two thirds of
in the western world are owned by those over 50. It is a well-known
fact that risk-return preferences change as we age. Older people
tend to prefer safer assets, including high quality, dividend
Dividends have accounted for more than 40% of the total returns
from the market over a long time horizon and thus they should be a
part of any long-term investment portfolio.
Further dividend payments are expected to continue to increase in
the coming months as most large US companies have huge cash piles
on their balance sheet and are in a position to increase payouts to
ETFs that hold stocks with a high dividend growth potential have
much better outlook compared with ETFs that focus on high dividend
yielding stocks. Most high-yield ETFs focus on sectors that are
likely to underperform in the rising rates environment.
VIG holds large high quality companies that have a record of
increasing dividends for at least 10 years.
Current top holdings include well known names like J&J,
Coco-Cola, Exxon, Pepsi and Wal-Mart. With its current strong focus
on cyclical sectors like industrials and consumer goods/services,
this ETF is poised to do well if the economy in general and labor
markets in particular continue to improve. It has miniscule
exposure to rate sensitive sectors like Utilities and Telecom-which
will underperform when the rates start inching up.
With an expense ratio of 0.10%, this is one of the cheapest funds
in this space. The SEC yield at 2.1% is not remarkable, but this
fund is better suited for investors who seek long-term capital
appreciation along with income and not just high current
How Pure Strategies Crushed the market
The ETF made its debut way back in 2006 and now manages almost $24
billion in assets.
The Bottom Line
ETFs provide a convenient way to capitalize on the world's rapidly
aging demographic trend. The older population will spend more on
healthcare, drugs and medical devices, so healthcare ETFs appear to
be obvious plays.
Looking at the longer-term trend, safer investments will also
benefit from aging population trends. Older people generally have
more money at their disposal than the younger population and they
prefer less risky investments including bonds and high quality
dividend paying stocks. Further rise in investable assets would
also result in a boom for asset managers.
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PWRSH-DYN PHARM (PJP): ETF Research Reports
SPDR-KBW CAP MK (KCE): ETF Research Reports
VANGD-DIV APPRC (VIG): ETF Research Reports
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