Mocktail, anyone? Investing across demographic trends

Shifting consumer preferences, driven by generational transitions, are reshaping major sectors of the global economy says Jens Peers, CIO of Mirova US and portfolio manager of the Mirova Global Sustainable Equity strategy. Technological advancements and evolving values are transforming how consumers interact with products and services. While demographic shifts such as the rise of a global middle class and significant wealth transfers are further influencing spending habits. In this dynamic landscape, businesses must understand these forces to adapt and thrive.

You describe your global equity investing strategy as multi-thematic. Can you briefly tell us about these four trends?

Jens Peers (JP): We invest in companies with meaningful exposure to economic tailwinds from long-term transitions that are affecting the global economy: demographics, environmental, technological, and governance. The demographics transition includes rising middle class in emerging markets, aging populations, increasing urbanization and shifting lifestyles, all of which are expected to impact healthcare, consumer products, and financials, among others, in the coming decades.

And roughly what percentage of your portfolio is invested in demographic trends? Do you have set limits or targets?

JP: We don't really have set targets. We create the portfolio from the bottom up, so the split between those megatrends is really dependent on how we see those opportunities, and no surprise over time that has changed. The demographic transition is around 20%, and it has to be said that some companies obviously contribute to and benefit from multiple trends.

An investment opportunity related to demographics often overlooked is changing consumer preferences.  Along with generational changes, particularly health and wellness, can you tell us how much this area is growing and how demand differs among different generations?

JP: Well, I think it's not just different generations. We have an ageing population and a younger generation. Millennials and Gen Z are big groups as well. They have different preferences, and older people just need different types of products. Even simple things like reading glasses and hearing devices are in demand for older people, which isn't the case for younger generations.

With the generational shifts and the demographic breakdown of our population, our economy is shifting automatically. We're talking about different preferences positively and negatively. For instance, if you look at millennials and Gen Z, this is one of the first generations that smoke a lot less and drink a lot less alcohol. But that also means there are opportunities, such as demand for mocktails and alcohol-free drinks in general, which is going up exponentially.

Equally, younger generations, driven by better education and research, are also more aware of the negative impact of ultra-processed food. That means there will be a lot more demand for natural ingredients in food, for instance. Healthier living in general presents lots of opportunities along the value chains.

Another demographic change is the growing middle class in emerging markets, where around two-thirds of the global population lives. Which industry sectors or sub-sectors do you see the biggest opportunities in?

JP: Despite what many people think, it's not always about consumption and specifically not about luxury. For many middle-class families in emerging countries, an iPhone—or, let alone, two or three iPhones for the family—is not affordable. Still, the middle class in Australia is not the same in terms of income level as the middle class in many of these emerging countries.

It's really about access to basic financial services. It's also about getting better infrastructure because that middle class tends to live in cities. Building out those cities requires a completely different way of dealing with energy and water, as well as waste management in those countries. So, those are a few areas we focus on when we think about the rising middle class in emerging countries.

We've just started the largest intergenerational wealth transfer in history, as rich baby boomers pass on their money and assets to their children and grandchildren. Is this an investment opportunity for you as well? If so, how are you taking advantage of it?

JP: It is maybe a little bit more tangential in our portfolio, but we see shifts in wealth management as well. As I mentioned before, the younger generations are more aware of sustainability, which translates into healthy living but also into how they invest. Sustainability becomes much more important for their portfolios as well, and obviously that's an area where we are focusing very strongly.