The world is aging, fast!
Wait, there's more.
In industrialized countries, the UN says older people had already outnumbered young people by 1998! Furthermore, according to the Organization for Economic Cooperation and Development (OECD), by 2050, senior citizens will constitute more than 30% of the population of Japan, Spain, Italy, and Germany. For Japan, they will be over 40%, the highest in the world.
The world is graying fast because people are living longer just as they are having fewer babies - whether fewer babies are being born due to people's choices or to decreasing fertility is not so clear.
One thing's for sure. This rapidly aging global population will fuel a huge, unrelenting demand for long-term healthcare around the world, giving you the investor the golden opportunity to make a killing over the coming decades.
You should know that while demand for healthcare will boom worldwide, the United States spends a larger percentage of its Gross Domestic Product (G.D.P.) and more per capita on healthcare than any other country. This is unlikely to change over the coming years.
Therefore, you really should have some exposure to the U.S. if you're serious about making money from the growing global demand for healthcare.
To ride this healthcare money train all the way to the bank you should consider investing in these four areas: Drugmakers (Pharmaceutical and Biotech companies), Medical Device Manufacturers, Healthcare IT Software Developers, and Healthcare Real Estate Investment Trusts (REITs).
DRUGMAKERS
Investing in drugmakers is the most obvious play on the aging world population.
Pharmaceutical companies and biotechnology companies both make drugs. However, as an investor you should note these differences between them.
The drugmaking business is a notoriously hit-or-miss business.
If you're lucky to invest in a drugmaker that delights with a string of "blockbuster" drugs, then you can make a lot of money. Last week, Bloomberg reported that Swiss drugmaker Roche, which makes the world's best-selling cancer treatment, has minted at least 12 Swiss and German billionaires.
On the flip side, a "flop" drug can be very devastating for the drugmaker and your investment. Therefore, don't get into drugmakers unless you can stand the Russian Roulette nature of the business.
The 800-pound gorilla that may totally put you off this space though is "generic competition". Once a drug patent expires, even a dog can make a copycat of the drug and sell it over the internet.
Generic competition can crush the long-term return on your investment in drugmakers because the tenure of patents seems to be on a downward trend. This means drugmakers are increasing likely to have less time to just recoup investments in their drugs, let alone make any profit off them.
MEDICAL DEVICE MANUFACTURERS
Here's a great description of a medical device by Wikipedia.
If generic competition puts you off drugmakers, then consider medical devicemakers (note, however, that some pharmaceutical firms also manufacture medical devices).
A majority of medical devicemakers around the world don't make just medical devices. They have other businesses to fall back on as this space is as competitive as the drugmaking industry.
North American companies dominate this space, and you can find both small and large players as picks. The biggest global medical devicemaker by revenue is American company Johnson & Johnson (JNJ).
All the research I've seen forecast the growth of the global medical device market to outpace that of the pharmaceutical drugs market for years to come.
I've no positions in any medical devicemaker.
HEALTHCARE INFORMATION TECHNOLOGY (HCIT) VENDORS
Another way you can board the money train of aging global population is to invest in HCIT software developers.
Obviously, medical devices come with integrated software to optimize their uses. That's not the type of software I'm talking about.
What i mean by HCIT sofware are Electronic Healthcare Records (EHRs) software. These software allow medical professionals and facilities to jilt paper (phew!) and electronically capture, digitize, and share medical records of patients across multiple platforms (web, desktop, mobile) and multiple patient engagement points (hospitals, labs, doctor's office, etc.).
The HCIT software industry is highly fragmented across many lines in most countries so you may have a hard time picking a stock wherever you are. In the U.S., the biggest healthcare market in the world, there are over 350 EHRs software vendors of various sizes.
The industry's future seems to be tied to the growth of mobile devices. Therefore, your best approach to picking a stock may be to find a vendor with strides or ambitions in mobile. This is how i got into the voice recognition technology and document imaging company Nuance Communications (NUAN).
The American company is more known for its voice recognition and language translation products but its HCIT business accounts for 30 - 40% of its annual revenue.
HEALTHCARE REITS
As the world's number of senior citizens explodes, developed economy countries will need more of these healthcare properties: Senior Housing Facilities, Skilled Nursing Facilities, and Medical Office Buildings (MOBs).
Developing economy countries will most likely need more MOBs and hospitals because most people in these climes tend to look after their elderly at home. Therefore, senior housing facilities are not common.
Healthcare real estate investment trusts (REITs) own and/or manage these healthcare properties.
REITs are my favorite way to play this hot trend of aging global population because they give you exposure to the two most popular asset classes of stocks and real estate. Throw in the recession-proof nature of healthcare and you're good to go.
Furthermore, you get steady income as REITs typically have to pay out a majority of their profits as dividends to investors.
The healthcare REITs space in most countries tends to be highly concentrated in a few big players and fewer small players. Therefore, you may not have to sweat so much to find a good pick. I used to own Nationwide Health Properties (NHP) until it was acquired by another American REIT, Ventas (VTR), in 2011.
I'm still on the prowl for a small-cap U.S. healthcare REIT. Wish me luck.
Remember, always do your own research before you get into any stock.
Of the six hot global trends discussed in this series, the aging global population is the most sustainable. People will get old and seek healthcare. There's nothing anyone can do about it.
This is the second in a series of posts that examine six hot global trends you should invest in now. In the next blog, i examine the hot trend of Energy Efficiency/Renewable Energy.
