Demographic trends bring focus to asset allocation
01 June 2009
Standard Life Investments, a leading investment house, believes that investors need to reassess their medium-term asset allocation in response to changing demographic trends.
In the latest edition of Global Horizons, the global fund manager has utilised its Focus on Change approach to argue that, over the medium to long-term, investors should consider inflation-linked securities, long-dated blue-chip corporate bonds and stocks and sectors with exposure to real assets such as energy, water and gold.
Standard Life Investments claims that the interplay of the current economic situation and demography will serve to reinforce some trends and dampen others. As populations age, there has been a long-term trend towards more bonds being held in portfolios. Investors need to be more discriminating though than simply adopting a blanket 'buy bonds' approach. Similarly, portfolios which favour pharmaceutical and leisure stocks will still benefit from the consequences of an ageing world. However, investors need to be aware of the increasing role that public policy and political preference will play at a stock and sector level, given the potential shifts in US health care provision.
Standard Life Investments argues that an increasing post-retirement population affects both the investment menu and the appetite for risk. Confidence that inflation will remain low and relatively stable is diminishing. As a result, there is a shift from nominal to real assets as governments expand their balance sheets and deficits grow on the back of increased spending on pensions and healthcare.
Frances Hudson, Global Thematic Strategist at Standard Life Investments, said:
"The time horizons of many investors are rather short at present. Many of the likely drivers of the next business cycle are linked to deep-seated population trends - infrastructure demand, healthcare and pension provision, the debate over carbon emissions and renewable energy, or the competitive balance between emerging and developed economies. Investors taking a medium to long-term view would do well to look beyond the end of the current business cycle and consider the likely characteristics of the next."
