As the chart below demonstrates, a relatively small percentage of the Australian population is currently over the age of 65. However, this part of the population is sure to grow, both in absolute terms, and as a proportion of the population. This phenomenon is sure to create opportunities for investors.
The key factor that determines future demographics is life expectancy. It is worth understanding the difference between life expectancy at birth and residual life expectancy at age 65. While life expectancy at birth is 79.7 for men and 84.2 for women, residual life expectancy at age 65 is 19.1 for men and 22 for women.
For example, based on average mortality rates, a 65-year-old woman can expect to live to 87. Put simply, baby boomers can expect to live to their mid-eighties, and perhaps longer if healthcare continues to improve.
In the future then, the fastest-growing segment of the Australian population will be those aged over 65. These seven companies are sure to benefit from this near-certain eventuality.
Every time my wonderful grandmother patiently explains that I need to speak louder, I think of Cochlear (ASX: COH). Perhaps the biggest single driver of demand for Cochlear’s hearing aids is age: the simple fact is that as we get older, our hearing gets worse. Even the most frugal retiree is sure to want to buy a hearing aid, if they can get their hearing back. Furthermore, with younger generations constantly listening to loud music through headphones, it’s safe to assume that demand for hearing aids is going to increase. The challenge for Cochlear is to stay ahead of the competition.
ResMed (ASX: RMD) is another blue chip stock that will benefit from the ageing population. Few sufferers of sleep apnoea would resist paying up for a device that allows them to breathe easily, all night long. Age and weight tend to increase the chances that someone will suffer from sleep apnoea, and the two factors are related because the elderly often find it a challenge to stay fit and active. Like Cochlear, ResMed is an industry-leader in an international market, facing competitive challenges (but with a large and growing addressable market).
Speaking of challenges, wealth manager Challenger (ASX: CGF) is another company that serves the needs of retirees. Many retirees prefer the safety and certainty of regular payments to the volatility of owning shares, even if they pay a premium for it. Challenger has an edge over other fund managers because it is the most established purveyor of annuities, a financial product most suited to an older generation. Though the profits of fund managers are necessarily cyclical, the company’s product diversity makes it an attractive option at current prices.
Another undeniable result of the ageing population will be increasing demand for homes in retirement villages. Such communities can assist the elderly to make the most out of their twilight years, without relying much on younger family members. Ingenia (ASX: INA) owns a range of retirement villages, and has invested in increasing both occupancy rates and capacity. The company also has interests in non-retirement related properties; for example Ingenia’s most recent acquisition was two tourism-related properties in the Hunter Valley. The Managing Director, Simon Owen, recently bought shares at around the current share price.
Capitol Health (ASX: CAJ) owns diagnostic imaging practices, and is therefore also likely to benefit from an ageing population. Diagnostic tools, such as Magnetic Resonance Imaging (MRI) scans are an essential part of a modern healthcare system. Many ailments that are more likely to impact older people will require an MRI scan. For example, MRI scans can be helpful in diagnosing heart problems and are increasingly used to detect the changes that occur after strokes.
Hospitals will certainly be under pressure as the population ages. One of the standout performers on the ASX over the last decade has been private hospital owner Ramsay Health Care (ASX: RHC). I’ve repeatedly made the mistake of not buying shares in the company, which are up over 10% since it announced the acquisition of 30 more hospitals in France, at the start of December 2013.
Finally, Invocare (ASX: IVC) is a business that owns a plurality of funeral parlours. The company operates under a number of brands and allows people to pre-pay for their funeral and burial. However, I don’t find the company particularly attractive (at current prices), because I’m uncomfortable with the future liability arising from prepaid funeral services.
I’m a firm believer that the ageing population in Australia and overseas will be one of the most important metatrends over the next 30 years. I like Ingenia and Capitol Health because they are growing strongly. Now might be a good time to buy Cochlear and ResMed because both companies will really benefit from a weaker Australian dollar that some are forecasting to fall as low, or lower, than $0.80 cents versus its US counterpart. Each of these seven companies have industry tailwinds behind them, and all deserve to be on your watchlist.