Identifying 'trends' is an important part of many investment strategies.
Trends last longer than cycles and provide opportunities for a company's management team to grow its business along with the broader industry.
One of the most popular trends over the past couple of decades has been technology and the latest one doing the rounds is cloud computing.
However, healthcare and superannuation are two massive trends some investors seem to be overlooking.
For example, in its 2013 annual report to shareholders, annuities provider and fund manager Challenger Ltd (ASX: CGF) quoted a Deloitte study, which forecast Australia's superannuation assets to reach $7 trillion in the next 20 years.
But even the next decade looks impressive…
Source: Challenger business update, June 4 2014
According to Towers Watson, Global Pensions Asset Study, Australia's pension fund growth has been the world's highest, notching up a compound annual growth rate (CAGR) of 14% between 2003 and 2013.
So you can bet financial advisers, insurers and fund managers (to name just a few) will benefit in a big way. Even our big banks, such as Westpac Banking Corp (ASX: WBC) are licking their lips at the abundant opportunities this trend will create.
However I believe Challenger, thanks to its industry-leading position in annuities, will be one of the biggest beneficiaries of more money entering retirement.
One of the biggest reasons the company thinks the amount of money entering the retirement sector will rise significantly is Australia's aging population. According to the Australian Bureau of Statistics (ABS), the median age of people in Australia has risen by 4.3 years in the past two decades and the proportion of people over 65 years old has increased from 11.6% to 14.4%. The proportion of individuals over 85 has almost doubled.
Source: ABS.
But it could get worse because: "Over the next several decades, population ageing is projected to have significant implications for Australia in many spheres, including health, labour force participation, housing and demand for labour."
Therefore if the cyclical nature of the funds management industry doesn't sit well with your investment strategy, perhaps an investment in the housing or healthcare would make more sense. Japara Healthcare Ltd (ASX: JHC) is one of Australia's largest aged care and retirement living providers. It has only recently listed on the ASX.
Another trend which many probably aren't aware of – or choose not to acknowledge – is Australia's rising mortality rate.
Source: InvoCare, 2014 1H Investor Presentation.
One company which has benefitted from this trend is cemetery, funeral and memorialisation specialist, InvoCare Limited (ASX: IVC). Shares in the company are up an impressive 283% in the past 10 years and have provided shareholders with an average total annual return of 19.1%.
A $160 billion tech trend and 1 stock ASX to benefit – Yours FREE!
All three of these companies have tailwinds at their back. However, investors should be aware that being in a growing industry does not automatically make a company a buy! They must still be well managed and their share prices must offer value. Determining a good price to pay, can be difficult.
