Trading the greying: Investing in a world ageing faster

The world is getting greyer at a dramatic pace. Simultaneously, birth rates have fallen across the globe.
The World Bank estimates that by 2030, the share of the population aged 60 and over will rise to 1.4bn, and 2.1bn by 2050. Similarly, the number of people aged 80 years or older is expected to triple between 2020 and 2050 to reach 426mn.
The impact from an ageing global population on financial markets will be felt across asset classes and geographies, and there’s no one-size-fits-all solution.
But many of the strategies being put in place to trade the greying of the world reflect inflationary concerns: Fewer bonds, more stocks and commodities, according to a Bloomberg report.
It’s also clear is that it’s a challenge that can’t be postponed.
“We think of demographics as a slow-moving train and it’s not,” said Erik Weisman, a portfolio manager at the $607bn MFS Investment Management in Boston. “It’s a train that’s barreling toward us and if you don’t get off the tracks you’re going to get run over.”
There’s an emerging view that as birth rates fall and populations age, companies will have to fight for workers, boosting wages.
It may mean positioning for interest rates — and bond yields — that will potentially be higher in the coming years than many currently expect.
Recent evidence backs up the calls for urgency.
South Korea’s birth rate is at a record low, both Italy and Germany have reported declining numbers, and there have been warnings from BlackRock CEO Larry Fink and investor Stanley Druckenmiller of a looming retirement crisis.
When Fitch downgraded the US last year, it cited the costs of an ageing population among its reasons.
The inflation case is partly built on a simple idea of more old people spending, fewer young people producing. Given that view — not universal, but widely held — certain asset classes are attracting particular attention.
Royal London Asset Management is leaning into equity and commodity markets rather than debt. Trevor Greetham, head of multi-asset at the $205bn asset manager favours commodities, commercial property and the resource-heavy UK equity market to safeguard his portfolio in a world with ageing populations and higher inflation.
Inflation tends to hurt bond investors by eroding the value of their holdings over time. That’s because the fixed coupon income is worth less in real terms each year, while the bond itself can depreciate if central banks tighten policy to quell price pressures.
A shrinking population and trade tensions with the US and Europe mean those disinflationary forces from China are waning.
The UN predicts that one in six people will be aged 65 or more by 2050. Getting investments right for that world is a particular concern to pension funds, a massive cohort managing about $50tn globally which must align investment strategies to ensure they meet liabilities to future retirees.
If many funds see demographics as too long-term to bother with, BlackRock, the world’s largest asset manager, sees opportunities. The $10tn asset manager has upped allocations to European and US healthcare stocks on the view that future demand is not fully baked in.
BlackRock favours India, Indonesia, Mexico and Saudi Arabia — developing nations where working-age populations are still growing — anticipating that stronger economic performance will fuel higher returns.
A longer life is an incredibly valuable resource. It provides the opportunity to rethink not just what older age might be, but how the whole lives might unfold.
If people are experiencing these extra years of life in good health, their ability to do the things they value will be little different from that of a younger person. But if these added years are dominated by declines in physical and mental capacity, the implications for older people and for society are much worse.