Millennials will reshape the investment landscape

millennials

Millennials are the largest generation that have ever existed. They are expected to make up 75% of the global workforce by 2025 and the way they spend their money will define the world over the course of the next few decades.

With half of the world’s population currently under the age of 30, the values of this generation are going to become the norm. This means their interests and priorities are fascinating for those interested in those attempting to spot long-term investment trends and themes. But will investing in millennial priorities provide a safe space for your money?

The term “millennial” is loosely defined, but tends to refer to people born between 1981 and 2000. Credit Suisse has done some work into defining the characteristics of the generation, which is a good place to start. They have a sense of work/life balance, prefer personal development over financial benefits, they embrace sustainability and are extremely tech savvy.

Other studies have demonstrated that this generation is willing to pay more for products and services coming from socially and environmentally-responsible companies. This means “clean tech” is an investment theme that is important to this maturing generation and it can also have the benefit that it is underpinned by government legislation. It is therefore fair to regard alternative energy, electric vehicles and smart buildings as millennial investment themes underpinned by demographics trends.

But investing in clean tech is not risk free – as has been demonstrated by solar panels over the last few years. Although the rise of green energy appears to be an unstoppable trend, the fact government regulation is a major driver remains a problem as well as a benefit, as governments change and adjust their priorities. For example, in the UK, the solar panel sector saw a 65% cut in subsidies in 2015. This has led to a slowdown in installations. The US solar industry is also currently enduring some major changes in the US following Donald Trump’s announcement of a 30% tariff on imported Chinese panels. Management at SunPower argued that it would have lay off staff, because most of its business involves installation, which was carried out by Americans. The company is seeing an exemption from the tariffs as it would damage its business and its shares remain volatile. That’s why collective investing in general green tech active or passive funds may be the answer.

the advertising industry is in flux as Instagram influencers and Twitter campaigns take over from more traditional advertising

The tech-savvy nature of the generation is also likely to catalyse change in the financial industry. When this digital-native generation starts to save properly, traditional banks may not be able to meet their demanding needs. Research from BNP Paribas showed that millennials have a greater need for transparency, a definite appetite for technology and are less attached to brands. It concluded that the sector needed to take a “precision banking” approach along the lines of precision medicine. Whether traditional, bulk service banks can ever offer such a service is questionable, that’s why financial technology, or fintech, is also a key sector to watch.

Although BNP Paribas noted that millennials are less attached to brands, this is actually a moot point. Indeed, last year, Ipsos Mori called it a “myth”. There is certainly a view that brands don’t matter to young people at the moment – but the research found that more than three quarters of youngsters globally said that they were more likely to trust a new product if it’s made by a brand they already know and 46% said they always tried to buy branded products.

But what do professional investors think when it comes to playing a millennial trend? In the US, the Indxx Millennials Thematic Index has been established to “measure the performance of US listed companies that provide exposure to the millennial generation”. Exchange-traded funds are able to track this index. The construction of this index implies that its compilers do not think that millennials will catalyse the death of branding. Unfortunately, it doesn’t really provide great insight for the self-directed investor either.

The index’s largest exposure is video-streaming service Netflix, at 4.38%, followed by Amazon (3.94%), Nike (3.64%), Costco (3.31%) and then VF Corp, which makes outdoor wear and controls more than half of the US backpack market through its brands which include Timberland and North Face. This hardly provides a great deal of insight into the way millennials are changing the world. Indeed, there are likely to be many funds with exposure to companies such as these so many investors are exposed to these trends anyway.

As well as benefits for some industries there are also some negatives – and these are just as important to spot. The fact that members of this generation are “digital natives” and comfortable with all types of technology has disrupted many industries. Indeed, the advertising industry is in flux as Instagram influencers and Twitter campaigns take over from more traditional advertising. This has left companies such as WPP and ITV with a major headache.

It is unarguable that millennials are also shaping the world – and it is important to keep an eye on trends in technology, particularly fintech. So, hunting for the investments that specifically target this age group may just involve chasing your tail – your portfolio is probably already targeting millennial interests. However, the financial influence of this generation is only just starting – and they can be anything but predictable.

 


The above article was previously published by Charles Stanley on 23rd April 2018