Always have a megatrend in your portfolio
September 07, 2019
4 minutes to read
A further slowdown in growth? Another decade of low interest rates? A trade war? Demographic trends give investors confidence in a world full of uncertainties. They are relatively predictable and are loosely connected to the economic cycle. That's why it is no coincidence that a large number of investment funds are already focusing on strong demographic issues, such as ageing.
In addition, an increasing number of asset management companies have one eye on another megatrend: the rise of the millennials or Generation Y. Today, this group is aged between 19 and 39, and overshadows other generations in order of magnitude. There are more than 2 billion millennials, as against 1.2 billion baby boomers (born between 1946 and 1964) and 1.4 billion Generation X (born between 1965 and 1979) today. By 2025, millennials will represent 75% of the workforce worldwide. This generation is also increasingly replacing the baby boomers as the most important force for prosperity.
The world is changing. That's why it's good to take a moment every so often to see whether your portfolio needs to change with it. In that sense, investing in the millennials may offer interesting opportunities to diversify your portfolio further. However, ‘millennials’ is also an umbrella term that can take many forms. What's more, you need to uncover shares which have a high exposure to this theme and which also offer the most potential. In addition, it may be useful to opt for a thematic fund which specifically invests in millennials’ consumption patterns.
These patterns can largely be split into three trends:
1. Happy and healthy
Millennials are paying more and more attention to their nutrition and on average spend more time doing exercise and sport and focussing on their own well-being. According to data from Goldman Sachs, sales of sports clothing have overtaken sales of normal clothing in countries such as China, where millennials show much more interest in sport and exercise than older generations. That's not only good for sports brands such as Nike and Adidas, but also for manufacturers of fitness trackers and smart watches.
Millennials’ concerns about health and well-being also go hand in hand with a concern for the environment. And that not only boosts sales of organic foods, but also meat replacements, too. Today, many traditional large food companies are investing heavily in these new products, such as General Mills (Beyond Meat), Nestlé (Impossible Foods) and Unilever (The Vegetarian Butcher).
2. Ayo technology
Millennials are the first generation of digital natives. They have grown up in a world where technology and the Internet are everywhere (and crucial) in their daily lives. The constant access to information shapes their way of thinking, communicating and making decisions. This means that they are also allergic to complexity. They want to see everything at a glance: is this something for me or not? If they don't like something, they swipe onto the next thing.
Smartphones are the most important gateway to life online: from shopping to instant messaging and social media. While the smartphone market is becoming increasingly saturated, the ecosystem continues to thrive around smartphones.
Digitalisation has also taken a firm hold when it comes to payments. Cash is disappearing, even when it comes to very small amounts. And it's not just the younger companies, such as PayPal, but also Visa and Mastercard who are benefiting.
E-commerce is growing at the expense of the high street, and this is particularly the case in smaller towns. E-commerce has long outgrown the era of books and CDs, and has established itself in all sectors, from fashion to meals to the home. The Internet is one shop window.
3. Services and sharing instead of owning
Many millennials are choosing services and sharing solutions instead of owning things. This is in stark contrast to previous generations, where the focus lay on having their own house, car and vegetable garden. Millennials use subscription services such as Spotify and Netflix, which can be used at any time wherever you are. Sharing cars, bikes and scooters? Bring it on.
In addition, millennials seem to be less inclined to make large investments. Perhaps the financial crisis of the last 10 years has fed part of this cautiousness. In addition, millennials also prefer experiences, such as travelling, events and gaming instead of ownership. Exceptions to this rule may be luxury goods and cosmetics in order to look good (on Snapchat and Instagram, too).