Where Are the Growth Opportunities in 2020?

12.17.2019 - Carin L. Pai, CFA


Demographic shifts, new technologies drive consumer spending and capital outlays

Lower interest rates helped keep consumer spending levels above water in 2019, but they weren’t enough to actually be stimulative.

Overall, personal consumption expenditures in the US slipped to an annualized growth rate of 2.9% in the third quarter, down from 4.6% in the second quarter of the year, even as personal savings increased steadily during the months of July, August and September.

In general, consumers are spending less and saving more. But a deeper dive into these numbers shows that while some industries have been hit especially hard by this trend, there are also pockets of the economy that are growing—consistently capturing a larger share of the discretionary income consumers have at their disposal. A look below the surface also reveals specific catalysts that are driving these spending patterns, offering investors a glimpse into the dynamics that are likely to discourage or encourage growth for certain market sectors in 2020 and beyond.

Healthcare services for old and young alike

Americans are getting older. Data from the US Census Bureau shows that the population of individuals over the age of 65 is expected to almost double by the year 2060 and the number of Americans over the age of 85 could triple. While these older consumers tend to spend less on consumer goods than other groups, they spend significantly more on their health. In fact, a report published by West Health in April 2019 estimates that seniors spent $22 billion on out-of-pocket medical expenses over a recent 12-month period.

More surprisingly, perhaps, is the fact that younger consumers are following a similar path, spending less on apparel and major purchases such as automobiles and allocating more of their budgets to the bare necessities such as food, utilities, paying down debt and healthcare. The Federal Reserve estimates millennials spend nearly twice as much on healthcare as baby boomers did at their age, accounting for 6.2% of their budgets compared to just 3.5% for boomers.

This shift in spending has broad implications for industries and investors alike. In addition to opening up new opportunities for the pharmaceutical industry and manufacturers of medical devices, it is also likely to spark demand for senior living facilities and at-home health care services. As millennials focus on their health, it is also pushing food providers to offer more natural and organic products, and it has given rise to a broad array of wearable electronic devices used to monitor health and fitness.

Consumers need professional financial advice

Outside the healthcare arena, the aging of America also offers the potential to drive demand for income-producing investments and wealth-management services among older Americans, as well as financial planning services for millennials. This generation is saving more for retirement than other generations at comparable ages, their incomes are rising faster, and they are in line to inherit a sizeable portion of the estimated $30 trillion that will pass down from baby boomers over the next 30 years.

Experiences take precedence over material possessions

Older Americans have another important spending habit in common with millennials—they are dedicating more of their disposable incomes to “experiences” such as attending sporting events and concerts, visiting amusement parks, dining at restaurants and traveling to exotic locations. According to Eventbrite, an online event management company, spending on personal experiences like these has increased 70% since 1987, and research conducted by McKinsey & Co. shows that spending on experience-related services is increasing at nearly four times the rate of spending on consumer goods.

One of the most prominent catalysts fueling this trend is the desire among millennials to share their experiences and express themselves online. Nearly three-quarters of the millennials surveyed by Eventbrite said attending a live event is the best way to show other people what they are interested in, and almost half said they attend live events just so they have something to share on social media.

Businesses that are ahead of this curve, evolving to meet the growing demand for unique experiences and technologies for sharing them with friends, could have significant competitive advantages in the coming years.

Innovation leads to investment opportunities

One of the most rewarding investment themes we have pursued in recent years is finding companies that are leveraging the power of innovation to capitalize on these emerging trends and capture a larger share of the market. Our enthusiasm for this investment theme rests primarily on four convictions:

1) Innovation is creating value, fueling rapid advancements in areas such as e-commerce, genetic engineering, self-driving vehicles and artificial intelligence.

2) It is necessary to look beyond traditional growth metrics to spot innovative companies with the vision and skill to thrive in this environment—trailblazers in markets where penetration rates are low and the prospects for growth are strong. For example, we focus on high-quality companies with forward-thinking management teams, strong business models and exposure to the secular tailwinds that encourage sustainable growth.

3) Innovators are making breakthroughs across a broad variety of industries in the US and abroad, pioneering everything from single-serve coffee makers to personal concierge services.

4) As equity valuations rise, finding growth at a reasonable price becomes more challenging. Identifying attractive entry points requires patience and taking advantage of buying opportunities requires agility and nimbleness—especially during bouts of market volatility.

With the likelihood of more frequent market volatility ahead, we believe carefully balancing opportunities against risks will be critical as we evaluate companies that are breaking new ground in 2020 and beyond. We will continue to look for growth at a reasonable price by taking a measured approach to owning stocks that may come under pressure in the short term but offer the potential for stronger long-term growth.

This analysis is provided for illustration and discussion purposes only and does not guarantee future results. Please speak to your Fiduciary Trust contact if you have questions or would like more information. This communication is intended solely to provide general information. The information and opinions stated are as of December 1, 2019, and may change without notice. The information and opinions do not represent a complete analysis of every material fact. Statements of fact have been obtained from sources deemed reliable, but no representation is made as to their completeness or accuracy. The opinions expressed are not intended as individual investment, tax or estate planning advice or as a recommendation of any particular security, strategy or investment product. Please consult your personal advisor to determine whether this information may be appropriate for you. This information is provided solely for insight into our general management philosophy and process. Historical performance does not guarantee future results and results may differ over future time periods.

CFA and Chartered Financial Analyst are trademarks owned by CFA institute.


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