New research by two Fidelity Worldwide Investment portfolio managers has argued that markets are losing sight of the long-term value of businesses, and that investors should instead look at demographic changes to identify future growth.
Hilary Natoff and Nicola Staffod argued at a media briefing in Sydney that demographics is “the most resilient and significant economic driver of our time”, offering greater certainty than other economic themes and a better judge of long-term profitability.
“Markets are losing sight of the long-term value of a business, with the average stock holding period currently under three months globally,” said Natoff.
Instead, Natoff argued that identifying demographic megatrends and the companies which will benefit from these is a superior way of identifying long-term compounding cash returns.
“We have more people but a finite world. Rising demand for resources such as food, water, arable land and energy have a clear multiplier effect on products such as grain to feed livestock. With the rapid rise in spending levels across developing markets, we’re seeing opportunity sets emerge in the consumption of staples, global brands, healthcare and education. While, with ageing populaitons, we’re seeing opportunities in areas such as hearing aids and eyecare.”
Natoff highlighted success stories such as insulin provider Novo Nordisk, which has seen compounded growth of 24% per annum over the last 10 years due to increasing levels of diabetes, and lens manufacturer Essilor International, which has also seen significant growth due to rising demand for vision correction worldwide.
She admitted that there was a psychological barrier to investors taking a long-term demographic view, as humans are hardwired to prioritise short-term results. Even so, she argued this creates opportunities for investors willing to take a long-term view.
“Demographic trends have created clear opportunities for both retail and institutional investors, added Natoff. “Demographics can be expected to play out with a greater level of certainty than macroeconomic trends because they don’t just emerge accidentally – they happen systematically.”
Fidelity Worldwide has launched a dedicated global demographics fund to take advantage of these megatrends.