Investment Matters

Census: Australia's aging population

Today marks the end of what has been quite an eventful financial year on the markets.  New week's Investment Matters will provide a synopsis of the FY-17 year. 

This week the ABS (Australian Bureau of Statistics) released data from the census conducted last August.  Although there were issues with the conduct of the census, the dataset has been assessed as being accurate to a sufficient degree to be meaningful.

This week Investment Matters considers the data released in relation to Australia's aging population.

Shift is happening now

The aging of Australia's population is often discussed, but usually in quite cursory terms.  Census data released this week provided a quite dramatic insight into how rapidly the shift is occurring, and how significant that shift is.

Firstly, the rapid aging of Australia's population is illustrated by the following graph.  It shows that from Dec-12 to Dec-16 the 65 years+ cohort has grown from 14.12% to 15.17% of the population; an increase of over 1% in four years.

Growing Cohort 65+ graph

 (All data is sourced from ABC Cat 3101.0 released on 27-Jun-17.  This data series was updated using data from the Aug-16 census.)

But further, the increasing portion of older Australians is occurring against a backdrop of Australia's overall population increasing.  Thus, the number of people aged 65 years+ has increased from 3,213,923 to 3,673,511 (also ABS estimated data in Cat 3101.0).  That is an increase of 459,588 older Australians in the last four years - an increase of 14.3%, or 3.4% p.a. on average.

Why does it matter

Older people generally consume more services, such as health care and accommodation specific to their needs, as compared to younger people.  Compounding this, the boomer generation - entering their retirement years now - is demanding a higher level of service and care than the previous cohort.  And generally they have a higher level of wealth to support the provision of this service standard.

From an investment perspective, companies that provide such services have a natural tailwind behind their revenue.  This should translate into a higher level of profit growth over time, as compared to a company that is exposed to the general level of economic growth.  And obviously profit growth will translate into share price growth over time (subject to the short term machinations of the market).

Four companies in your equity portfolio that provide services to Australia's aging population are:

* Primary Health Care: provision of primary (GP) services, along with radiology (imaging) and pathology services

* Paragon Care: provides equipment, devices and consumables for the health care industry, including many specifically for use in aged care, as well as a wide range of products that are used in hospitals and clinics more broadly

* Aveo: provider of retirement accommodation, with an increasing focus on providing a higher level of services and extending into aged care (more on Aveo below)

* Challenger Financial: Australia's principal provider of annuities - as there are more older Australian's retiring, with greater wealth, many are seeking the certainty of income that an annuity can offer.

Conclusion

It has been said that "demographics is destiny".  And whilst there are never any certainties in the investing world, demographics are perhaps as close as it gets.

Therefore we believe it makes investing sense to ensure our clients' portfolios are positioned to benefit from the continuing and significant aging of the Australian population.  And then be patient.

Happy new financial year from your Investment team at First Samuel.