Longevity Economy strategy - January 2023

We selectively increased our exposure to consumer stocks

• Global equity markets declined in December, driven by recession fears in 2023
• The strategy outperformed the broader equity market over the month
• Global populations continue to age likely driving gradual but meaningful changes in consumption patterns

What’s happening?

December brought to an end the weakest annual performance for the MSCI All Country World Index (MSCI ACWI) since 2008 (as judged in USD terms). Much of the weak performance should be expected given the increase in “risk-free” rates which mean investors could obtain higher returns for lower risk and therefore demand higher rates of return for risk-bearing assets such as equities. MSCI ACWI declined in December for a range of macro reasons that have been detailed extensively here and elsewhere over the course of 2022. Stock markets continue to have their reactions to events set to “irony-mode” for example by responding negatively to increases in employment.

China loosened its zero-Covid policy which is believed to have resulted in a sudden sharp increase in Covid-19 infections in the country. The severity of the current outbreaks is hard to measure because there is a paucity of official data. The human cost of Covid-19 outbreaks cannot be ignored and we hope for a speedy decline in cases in the region.

The irony of the China Covid-19 situation for investors is removal of the zero-Covid policy was something investors apparently wanted because previous suggestions that the policy would be loosened had catalysed increases in stock prices for certain stocks, particularly consumer discretionary companies. However, the market seems to have inadequately considered that fewer social distancing restrictions would lead to higher Covid-19 cases and that might not be great for consumer demand.

Portfolio positioning and performance

The longevity economy strategy declined in absolute terms, but outperformed the broader market in December (as judged by the MSCI ACWI). All four themes of the longevity economy experienced declines in December with Silver Spending being the weakest driven by the stock performance of animal health and leisure stocks, such as Booking Holdings. This is a reversal of the trend seen in November when there were suggestions that China’s zero Covid policy would be loosened.

Companies exposed to the Treatment theme, such as AstraZeneca, were among the strongest contributors to strategy performance during the month.

Selective changes were made to exposure during the month, including increasing exposure to certain consumer stocks. At present we are seeking exposure to a mix of stocks with strong commercial franchises capable of producing steady returns alongside stocks capable of faster growth that carry higher risk, but risks that are diversified by the steady return businesses.

Outlook

Macroeconomics has dominated sentiment throughout 2022, it seems likely this will continue in 2023, but it is never exactly clear. Few, if any, market commentators predicted a global pandemic in the 2020 preview reports they published in 2019. What is fairly clear is investor sentiment is low and it seems as though many equity market participants are positioned in perceived lower risk equities. Historically, it has made sense to invest in equities after each major market decline, so some might conclude the market is currently too pessimistic. Short-term macroeconomic trends are not reliably predictable, but the fund manager believes in the long-term power of longevity and ageing populations to drive changes in consumption patterns.

The longevity economy strategy is tilted towards growth companies and we expect this to be beneficial over the long-term, but it does mean the strategy could lag the broader market during periods of volatility or when growth stocks are not favoured by investors.

Despite the market volatility, global populations continue to age likely driving gradual but meaningful changes in consumption patterns.

Examples are provided for informational purposes only and  should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalised recommendation to buy or sell securities.

No assurance can be given that the Longevity Economy Strategy will be successful. Investors can lose some or all of their capital invested. The Longevity Economy Strategy is subject to risks including: Equity; Currency; Global Investments; Emerging markets; Investments in small capitalisation universe and Investment in specific asset classes.