Invest in the ‘longevity dividend’

But new numbers from the Office for National Statistics (ONS) show that an increasing number of us are reaching this milestone. According to the latest data, there are now 15,330 people aged 100 and older in England and Wales. That number has more than doubled since 2003, when we had just 7,270 centenarians.¹

Separate figures from the ONS show that, by 2068, there are likely to be an additional 8.6 million people aged 65 years and over in the UK – a population not far off the size of London.²

These statistics are a worrying reminder of the pressure to make sure our pensions last through retirement. But could rising life expectancy be both a challenge and an opportunity?

Some investors are attempting to tackle the financial issues that longevity brings by investing in it.

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Sectors that could benefit from a ‘longevity dividend’

We’re already seeing the rise in the number of older citizens reshaping economies.

One of the key sectors likely to benefit is healthcare. As populations age, healthcare spending is getting a boost. Companies providing healthcare services or manufacturing equipment like hearing aids and blood pressure monitors could well see increased demand. Spire Healthcare, for example, is a UK-listed company that runs hospitals and medical centres across the country as well as being one of the biggest independent providers of hip and knee operations.

Investors should be aware that Spire is currently contemplating a sale of the business, which could value the hospital company at more than £1.4bn.³

Bigger, wealthier populations of older people are also spending more, with areas like travel, leisure, beauty, and skincare benefiting. Some are calling this spending boom the “silver economy”. 

Cosmetics companies like L'Oréal (listed in Paris) have entire product lines designed for mature skin and grey hair.

There’s also an argument that technology stocks could be a bet on longevity. Innovations like artificial intelligence (AI) could provide productivity boosts to make up for our shrinking ratio of working-age people to pensioners. Microsoft is a classic example of a company investing heavily in improving business productivity via its tools and products.

Of course, large companies like L’Oréal and Microsoft will be impacted by many factors beyond just demographic change.

Financial firms are another potential beneficiary. The services of pension companies and financial advisers are likely to be in demand as people try to build up and manage retirement pots that can survive the ‘100-year life’.

Investors who want to tap into the theme of ageing populations could look to buy specific stocks they think will benefit or they could buy a fund investing in the area.

There are demographic funds that back the theme, such as the Fidelity’s FF - Global Demographics Fund launched in 2012. An active DIY investor may consider backing the themes themselves through sector specific trusts. There are a number in the health sector, which we set out below, and one that combines health and property.

We also set out the risks below and would suggest that for most fund investors, our Select 50 is a good starting point for research before moving to such niche selections.

• View our Select 50: our favourite funds - selected by experts

Funds investing in longevity sectors

Worldwide Healthcare Trust is an investment trust specialising in the global healthcare sector. It is run by a team of healthcare specialists who invest in everything from large multinational pharmaceutical companies to unlisted emerging biotechnology companies. Currently it has big holdings in US giants like Boston Scientific and Eli Lilly.

Target Healthcare REIT is a real estate investment trust focused on care homes. It owns a portfolio of care homes across the UK which are then let out to care providers to manage. It aims to pay a dividend to investors and currently has a yield of 6.2%. REITs can be at risk if they are exposed to a small number of tenants, especially if any of those fail to pay their rent. According to its August quarterly report, Target Healthcare had a portfolio of 93 care homes let out to 34 different care providers - providing some level of diversification.

Primary Health Properties, another REIT with longevity exposure, invests in medical centres and surgeries across the UK. It was one of the best-selling shares on the Fidelity platform in August. The jump in popularity may be down to the fact it recently agreed to purchase another UK healthcare real estate investor, Assura, for £1.79bn.

There have also been several funds launching in recent years that invest specifically in longevity as a theme.

The risks

It’s important to bear in mind that investing in “the silver economy” comes both with the general risks of stock market volatility but also its own specific risks.

Biotech and healthcare, for instance, can be volatile sectors. Failed clinical trials or expired patents can hit stocks hard and it’s tricky for investors who are not healthcare experts to understand fully what’s going on under the bonnet of these companies. They can also be the victim of regulatory and political changes, such as cuts to healthcare spending.

On the consumer side, pensioners’ incomes are often, at least partially, reliant on the state. Political changes, for example delaying state pension ages or changing benefits, could limit older people’s spending power in future.

Real estate investment trusts (REITs) have their own set of risks. Portfolios are often financed with debt and so a worsening backdrop for interest rates could cause problems.

Care home specific REITs are also vulnerable to regulatory changes, including potential caps on care costs, and reputational crises if homes are found to be unfit for purpose.

Some people argue that investing in companies that will benefit from longevity is no different from simply investing in companies that are likely to grow in general. Therefore, some investors may want to keep matters simple and just punt for a general growth fund.

Watch our most recent podcast on why longevity could reshape your finances, and everyone else’s: Are you ready for the 100-year life?

• Read: Seven steps to pass on a portfolio
• Read: Which global index fund is best for you?
• Read: What can we expect in the Autumn Budget?

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