Which fast growing global investment trend is 10 times the size of Australia’s economy yet few investors in Australia truly have investments exposed to this trend?
The answer is the vast spending power of baby boomers (those born between 1946 and 1964). As a group, they are the wealthiest part of the population in many developed countries. Contrary to popular belief, this trend isn’t just about investing in healthcare shares. It is much broader than that, as we will reveal.
The following information does not take into account your personal objectives, financial situation or needs. You should consider if the relevant investment is appropriate having regard to your own objectives, financial situation and needs.
Before we provide our views on how you too can invest in this trend, here are some staggering numbers on the wealth and spending power of baby boomers:
- Market research firm Euromonitor International estimates that globally those aged 60 or older by 2020 will have US$15 trillion in total spending power having grown from US$8 trillion in 2010. As a comparison, the size of Australia’s economy in 2014 (measured by gross domestic product) was approximately US$1.5 trillion.
- Various studies have revealed that baby boomers are responsible for more than 50% of consumer spending in major developed countries where they also own the majority of wealth.
With all this wealth will baby boomers actually spend?
Yes, particularly with recent research suggesting that many baby boomers would rather spend their wealth than pass it on to their children.
A number of smart listed international companies have now realised the potential of baby boomers’ extensive spending power. As a result, they are specifically targeting baby boomers as a fast growing customer market with a variety of products and services.
What types of companies will benefit from this trend?
There are many types of companies that will benefit from the baby boomers’ spending power trend. For example, baby boomers are key customers for healthcare, luxury car, cruise ship and even technology companies. In fact, if you consider all the things that baby boomers already buy, the potential investment opportunities are quite diverse. Below is a profile of a company that we believe will continue to benefit greatly through the spending power of baby boomers.
Daimler is the international listed company that manufactures and sells Mercedes Benz vehicles. Despite Mercedes targeting younger customers in recent years, the average age of a Mercedes buyer in many markets is still 50 years or older. Daimler’s vehicles have long been coveted by baby boomers and this is unlikely to change anytime soon. In fact, Daimler shares provide one of the best exposures to the continuing growth in baby boomers’ spending power.
For those who are concerned about investing in offshore listed companies such as Daimler, here are some summary statistics that may put you at ease:
- Listed on the Frankfurt stock exchange in Germany, Daimler has a market capitalisation of EUR 79 billion (A$122 billion), virtually the same as Australia’s CBA.
- Daimler sold 2.5 million vehicles worldwide in 2014 (having grown from 1.9 million vehicles in 2010) generating over EUR 11 billion profit before interest and tax.
Daimler – Innovations
Besides Daimler’s appealing baby boomers customer base, what is most attractive is the company’s innovative approach to motoring. It has been at the forefront of vehicle technology for decades having been the first company to introduce features such as anti-lock braking systems (ABS) to cars. Currently, Daimler is a leader in semi-autonomous driving technology. These types of technology advances can no doubt help extend the age customers can drive. This will provide the company opportunity to attract even more baby boomers as customers.
Daimler – Final Thoughts
As for the wider fallout from the recent Volkswagen (who also own Audi) diesel emissions scandal, we believe Daimler will see net benefits as Volkswagen battles to restore its reputation with customers. Daimler have categorically stated its vehicles do not have any devices or software that manipulate emission tests. To publicly make this statement, we believe Daimler would have first checked its emissions program thoroughly.
Looking forward, the market expects Daimler to increase its earnings by 9% in 2016 versus 2015. Our analysis suggests Daimler can achieve and potentially better this. This means Daimler’s shares are only trading at a 2016 price to earnings ratio of 8.1x. Certainly a worthwhile investment to consider for those looking for a quality exposure to the $15 trillion baby boomers’ spending power trend. We will be providing free insights (for a limited time) on a number of other blue chip shares exposed to this trend.
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