Demographic trends have created huge opportunities for investors globally, whether it be the aging population in Japan or the rise of the educated middle class in Asia.
However, no demographic has been more vocal on the sustainable investing front than the so called ‘millennials’ or ‘generation Y’.
This group currently comprises around 20% of the UK population and totals 92 million in the US alone, making them the largest generation in the country’s history and even bigger than the ‘baby boomers’.
While definitions of the age range of millennials varies, according to a report by Standard Life Investments called The Rise of the Millennials, they are identified as individuals between the ages of mid-teens to early 30s. Importantly, they are described as “the first digital natives”, which is shaping the way they view money, how they spend it and also how they invest.
In particular, changes in values on a range of issues, such as climate change, have revealed this generation’s preference for sustainable investing as more and more millennials are looking for investments that ‘make a difference to the world.’
Indeed, a recent survey by Morgan Stanley found millennials are twice as likely to invest in portfolios or individual companies that seek to have positive environmental or social impacts.
Craig Bonthron, co-manager of the Kames Global Sustainable Equity fund, said: “Millennials tend to concentrate their spending on leisure experiences – ie, cooking and eating out – rather than on material possessions. More demanding than their predecessors, they also expect higher quality and healthier ingredients in their food.
“This drive for quality does not stop there, however. As they ‘settle down’, something they are doing later than previous generations, millennials are demanding very high standards when building or improving the infrastructure around their lives – ie, making home improvements.”
Below, Bonthron highlights four sustainable stocks which he believes are well positioned to play the ‘millennial boomers’ theme.
Ingredion and Kerry
US-based Ingredion and Ireland-based Kerry are global food ingredient companies, working for branded or large own-brand (supermarket) consumer food manufacturers.
They enable these firms to develop new products which consumers want and help them to adapt to new trends and tastes: ie millennials’ shift away from traditional packaged foods with processed ingredients towards fresh, organic and healthy alternatives.
There is also a strong growth in smaller niche brands. As such, there is a growing demand for the services of these ingredients companies as they can support the need for large global players to adapt and emerging new niche brands’ growth.
Mohawk is a US-listed designer/manufacturer of flooring for residential and (to a lesser extent) commercial construction markets. Traditionally a carpet manufacturer, it has diversified into different flooring types (ceramic, vinyl etc) and different regions via acquisitions.
It is a big beneficiary of what Americans refer to as Repair and Remodel (R&R) activity in the residential housing market. It is a very well-managed business and the largest player in a fragmented market, giving it scale, distribution and cost leaderships versus the competition.
Mohawk will benefit from the millennial boomers as they form families and shift from urban living in apartment blocks to suburban living in houses. This has been delayed up until now and is currently running five years behind expected estimates.
But it won’t be delayed forever and as this evolves over the next five years we will see a meaningful uptick in R&R spending which will benefit Mohawk.
Mednax is a US provider of neonatal care clinics, anaesthesiology and radiology services within US hospitals. Neonatal care (under the Pediatrix brand) is the original and largest part of its business.
The number of sick and premature babies is a direct function of the total number of babies born in the country and US birth rates have been depressed relative to history for a number of years.
Millennials have delayed having children due to generational and economic factors; birth rates have yet to pick up to reflect the demographics. As with Mohawk, it is expected that family formation birth rates will pick up over the next five years, benefiting Mednax due to this direct relationship.