The use of demographics, the most important driver of our times: Fidelity.
Demographics is the most resilient and significant investment driver of our time, providing investors with greater certainty than many macroeconomic themes and allowing them to identify companies likely to benefit from compounding cash returns over the longer term, Fidelity Worldwide Investment said today.
In a White Paper released titled ‘Investing in Demographics’, Fidelity’s portfolio managers, Hilary Natoff and Nicola Stafford, who are based in London and visiting clients in Australia, discuss in detail the impact of demographics on stock picking and portfolio construction.
“Demographic trends and structural growth themes are happening now and have created clear opportunities for investment strategies for both retail and institutional investors,” said Hilary Natoff, Co-Portfolio Manager of the Global Demographics Fund, Fidelity Worldwide Investment.
“Demographics can be expected to play out with a greater level of certainty than the macroeconomic trends because they don’t just emerge accidentally, they happen systematically. In fact, demography is one of the few social sciences where projections can be made with a relatively high level of certainty,” said Ms Natoff.
“In addition, markets are losing sight of the long-term value of a business with the average stock holding period currently under three months globally. Sell-side analysts focus on near-term earnings forecasts yet earnings – not valuations – drive returns in the long run. A large part of company value is represented by longer term profitability and compounding so those investors able to identify companies exposed to long term structural growth themes such as demographics can sensibly exploit this market inefficiency. “
Ms Natoff said the world is undergoing a dramatic transformation as a result of three demographic megatrends– global population growth, emerging middle class and ageing populations.
“A changing world creates investment opportunities. By 2030, world population is expected to grow from 7 to 8.3 billion, the middle classes will more than double, and the over-60 age group will expand from 0.8 to 1.4 billion. This is having a significant impact on the demand side of the global economy, creating opportunities for companies to expand sales and earnings in growing global marketplaces.”
Ms Natoff said these trends present a number of structural growth opportunities for investors.
“We have more people but a finite world. Rising demand for resources, such as food, water, arable land and energy have a clear multiplier effect on products such grain to feed live stock. With the rapid rise in spending levels across developing markets, we’re seeing opportunity sets emerge in the consumption of staples, global brands, healthcare and education. While with ageing populations, we’re seeing opportunities in areas such as hearing aids and eye care for example.
Click here to read the white paper.
“Time spent identifying companies with a strong competitive advantage and valuable intellectual property in industries benefitting from structural growth is time well spent. Companies such as Essilor, Nigerian Breweries and Novo Nordisk have all significantly outperformed the broader market due to strong structural demographic growth drivers.”