July/Aug 2019
BETTE E D'S R BUSI RANT N ESS
AGEING POPULATIONS One thing we can say for sure is that demography is now tilting the global balance of equity ownership patterns, probably for ever. As the citizens of the world are encouraged to monetise their own futures by replacing their employers’ funds with their own retirement portfolios (in which they carry all the risk), the demand for safer options, for high yielding shares and for low-maintenance funds such as oeics/ucits (especially passives) has grown. That seems straightforward enough, of course. But what we forget at our peril is that the sheer numbers of elderly are set to grow strongly over the coming decades, as baby boomers retire and younger workers – who are supposed to support them – fail to supplant them because not enough of them have ever been born.
shortfall of £334 trillion by 2050 unless its politicians pulled their pencils out pretty sharply. Using calculations based on the idea that a retired person would need 70% of what they’d earned during their working life, the WEF forecast that the UK’s pensioner deficit would soar from £6.2 trillion to more than £25 trillion by 2050. You can look at this problem any way you like, but over the long term it’s certain to drive people into buying low-risk, low-maintenance products that don’t do fancy things with aggressive growth strategies. But what will those be? Good question. Any investor, or pension fund manager, who sought sanctuary in bonds at today’s wafer-thin yields – never mind those of the last ten years – may well find that a future capital loss makes a monkey out of whoever told them it was a safety strategy. So have we got the risk balances right? I wonder. DIVERSIFICATION
The growing use of derivatives is another calming aspect of the international investment scene which we ignore at our peril
Only two years ago, the World Economic Forum produced a report suggesting that the OECD developed-world countries would find themselves carrying a pensions
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It’s not all bad news for the equity strategists, of course, because today’s globally interlinked markets are big enough and liquid enough to take a lot more knocks than they used to. Just as British investors are able to buy US or Japanese or Indian shares with ease, so foreigners are more interested in buying into the UK. Even if we exclude foreign-domiciled listed companies in London and confine ourselves to UK-domiciled ones, we find that a majority of their market capitalisation is foreignowned. The precise figures are hard to pin down because of varied ownership structures, but an Office for National Statistics survey in 2016 put the figure at 53.9%. (Up from
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