Fidelity x Equity Mates: Ultimate megatrends | ASX Investor Day
This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”). Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International.
Prior to making an investment decision, retail investors should seek advice from their financial adviser. This document is intended as general information only. Please remember past performance is not a guide to the future. Investors should also obtain and consider the Product Disclosure Statements ("PDS") for the fund(s) mentioned in this document before making any decision about whether to acquire the product. The PDS is available on www.fidelity.com.au or can be obtained by contacting Fidelity Australia on 1800 119 270. The relevant Target Market Determination (TMD) is available via www.fidelity.com.au. This document has been prepared without taking into account your objectives, financial situation or needs. You should consider such matters before acting on the information contained in this document. This document may include general commentary on market activity, industry or sector trends or other broad-based economic or political conditions which should not be construed as investment advice. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be construed as a recommendation to buy, sell or hold these securities. While the information contained in this document has been prepared with reasonable care, no responsibility or liability is accepted for any errors or omissions or misstatements however caused. The document may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity's funds is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. References to ($) are in Australian dollars unless stated otherwise. Details of Fidelity Australia’s provision of financial services to retail clients are set out in our Financial Services Guide, a copy of which can be downloaded from our website.
© 2022 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL Limited.
Bryce: [00:00:15] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing. Whether you're an absolute beginner or approaching Warren Buffett status, our aim is to help break down your barriers from beginning to dividend. My name is Bryce and as always, I'm joined by my equity buddy, Ren. How you going?
Alec: [00:00:30] I'm very good Bryce. I am excited because we're back with ASX week. We get to do this twice a year where we partner with the ASX who host an Investor Day twice a year and we get to speak to some of the best speakers from their Investor Day on the podcast. We call it ASX week and this is what our third instalment of it? And it keeps going from strength to strength.
Bryce: [00:00:54] That's it. We're really excited. So today we we're kicking it off. The ASX Investor Day is a day designed to provide investors of all levels with practical tools and knowledge to help improve their investment strategy and build their investing confidence. Those in the Equity Mates community know full well that we've been partnering with the ASX for the last year, as Ren said, and this week is no different. We have a chance to hear from some of the best speakers on the day experts in their field across five different topics. So we'll be listening to topics including investment insights from around the world. That's where the fire trail. Today we've got key megatrends driving global markets with Lauren Jackson from Fidelity where we're looking at changing face of investing from Vanguard. And then of course in a buy hold cell with Adam Dawson from Shaun Partners, which is always a classic. And finally, if you like what you hear this week and want to hear more, you can register your interest on the ASX Investor Day website as there will be three live sessions around Australia. Brisbane kicks off this week on the 14th of May at the Sofitel, Melbourne on the 21st of May at the Grand Hyatt, and then closing out with a bang here in Sydney on the 28th of May at the Hilton and Ren and I will be there. So it's a great opportunity for the Equity Mates community to come along, learn from these great experts and have a chinwag along the way.
Alec: [00:02:17] Now, to be clear, when Bryce says we will be here, we will be at the Sydney event on the 28th of May. We haven't quite convinced the ASX to fly us around, so we won't be in Brisbane or Melbourne to clarify that. But if you do want us to be there, just get in the ear of the ASX reps there and say it would have been great if Equity Mates were here. That's it. Maybe for the fourth instalment we'll get on the plane.
Bryce: [00:02:40] That's it. But anyway, without further ado, it is our absolute pleasure to welcome Lauren Jackson from Fidelity to Equity Mates. Lauren, welcome.
Lauren Jackson: [00:02:48] Thanks, Bryce. Thanks, Alec. Thanks for having me.
Bryce: [00:02:51] So Lauren is here to chat with us today about key megatrends that are driving global markets. Lauren is Fidelity's director and sales manager for Queensland and has over 20 years experience working in financial services in roles with BT, Financial, Tower Trust and Mariner Financial and now Fidelity. She's presenting at the ASX Investor Day on, as I said, harnessing demographic megatrends that are shaping global growth. So a really exciting topic around let's get stuck in.
Alec: [00:03:20] Yeah. So Lauren, let's start at the very beginning. Before we get into demographics as a megatrend, let's focus in on that word megatrend. What is a megatrend?
Lauren Jackson: [00:03:31] Now, that's a great question, guys. And I think it's important to remember that megatrends are really trends that have an impact on a global scale. So I guess when we think about that, they can typically be categorised as a major movement pattern or trend that actually occurs in the macroeconomic environment. Typically that force, you know, really thinking about driving us a significant impact on the kinds of products that consumers like ourselves would like to purchase in the foreseeable future. So when I think about megatrends today that include things like the growing interest in health, technology, demographics and of course even the environmental issues that we're currently facing as well.
Alec: [00:04:14] Why is a megatrend then a good investment or why is a megatrend investable.
Lauren Jackson: [00:04:20] You know, megatrends, major movements happening in the global economy? Right. So why are they so investable? It's because US investors want to be able to get, I guess, insights or the ability to invest in these traditional long term trends in nature. So it kind of makes sense if you're really loving your tech that you want to be able to get into. You know, what do these brilliant tech companies have been able to deliver for us?
Bryce: [00:04:44] So that's the megatrend part. But we're here today, today to discuss the demographic megatrend. And fidelity breaks the demographic mega-trend into three components longer lives, better lives, more lives. So so can you help explain that breakdown in some of the numbers behind each of them?
Lauren Jackson: [00:05:03] Yeah, sure. And I must say, demographics is a megatrend is one that I absolutely love to talk about, mostly because it is a fast. Trading topic, right? And there's so many areas that we can look to explore. But when you think about the power of demographics and what 15 years can do on a global scale, some really interesting statistics come out of this by the year 2030. So just eight years into the future, the world population is expected to reach circa 8.5 billion people, with around 5 billion of those expected to be in the middle class. Now, that's a significant jump from where we are today, right at circa 7.8 billion in the world's population and close to 4 billion in that middle class segment. So these are huge numbers and really open up areas that we can explore as investors. So we're looking at longer lives with life expectancies continue to edge out. We're living better lives reflecting the rising middle class. And of course, the idea that we're going to see more lives on the planet in the future as population continues to grow. But if I start with this longer lives same, you know, the numbers here are really staggering. So today the average life expectancy of a child born here in Australia is around 82.1 years. So fast forward though to two years time, so 2024 and that life expectancy is actually expected to edge out to around 84.9 years. But research is telling us that by the year 2050, the average life expectancy will be 90.4 years. So some huge legs up in the number of years we're all expected to live in the future. Better Lives. So also is a really interesting segment because it delves a little bit deeper into this global middle class. And the economic growth that's going to be driven by spending across this huge cohort of people is huge. In fact, by 2050, it's estimated or it's possible that two thirds of the global population are going to be considered middle class. So that's a lot of people aspiring to live better lives in the future. And lastly, if I look at that longer lives same, you know, obviously with more people on the planet on a year by year basis, this is going to open up huge amounts of challenges, but also opportunities as it relates to things like resources, you know, food production, energy and of course, water. So that's a really interesting kind of themes to delve a little bit deeper into.
Alec: [00:07:48] Yeah. Yeah, it is a fascinating story and it's a really encouraging story, I guess, you know, some of those numbers that you just spoke about, the idea that there will be a billion more people in the global middle class in the next eight years is phenomenal. The idea that in two years Australia's life expectancy can improve by 2.8 years on average like that. Again, it's just it's a remarkable move in a very short period of time. So we're an investing podcast here. Fidelity is obviously an investment powerhouse, so let's take the megatrend that you just discussed and put an investing lens over it. And we'll start with longer lives because in your presentation you discuss $1,000,000,000,000 silver opportunity. So what are some of the, I guess, the industries or some of the sectors that will benefit the most from humans living longer?
Lauren Jackson: [00:08:42] So when we talk about the trillion dollar silver opportunity, what we really seeing here is companies across the world taking advantage of us all going great.
Alec: [00:08:54] So well, I've already I've already lost my hair, so.
Lauren Jackson: [00:08:58] I got to die mine. Don't worry. But what I mean by this is what we're seeing across the world is spending power in Asia, Latin America and even the USA more than doubling over this next decade as we all get older now, per capita consumption of 65 plus year olds relative to the 25 to 65 year old cohorts, are actually spending 1.1 to 1.4 times their younger counterparts. So this is really interesting because these are some big numbers and it does mean that certain industries are likely to benefit from the growing trend of us all getting older. So as we get older, we like to improve the quality of our life and typically we've got accumulated superannuation or savings under our belts. And so health care is actually one of those industries that we do see as a huge opportunity for investors. So businesses like IQ VR, which is actually a leading global provider of advanced analytics and clinical research services to the life sciences industry, and also a business called. I saw Luxottica, which is actually a leading global producer of eyewear frames and manufactures of lenses. So they're great businesses that can really tap into us living longer. One other area or industry that we also see benefiting from this theme of us living longer lives is actually automation. Now, this is a really interesting one because automation actually becomes an opportunity as it provides a solution to the shrinking workforces across the world. So as we know, there is a large portion of the population not only here in Australia but around the world which are becoming baby boomers and starting to move into that phase of their life of retirement. And they're going to exit the workforce. And so we've got this real big challenge where labour participation rate is likely to, you know, decrease. So it's going to create huge shortages in our working population. And this means that businesses around the world are going to have to look to automation as a solution for that.
Bryce: [00:11:23] You mentioned there, Lauren, that Better Lives is going to be sort of driven by the emerging class. And we're looking at what was it by 2030, an extra billion added to that emerging class, which is pretty.
Alec: [00:11:35] Emerging.
Bryce: [00:11:35] Middle class. Emerging middle class, which is which is pretty exciting and especially for us here in Australia, given the proximity to Asia-Pacific and the emerging middle class that will be coming from there. So as you know, with our investing cap on again, what are some of the industries that we should be watching in this in this demographic megatrend?
Lauren Jackson: [00:11:54] All right. So I totally agree. I think that these better lives trend is a really like exciting opportunity for investors, particularly here in Australia, given we're located so close to Asia. So the global middle class, as we've outlined, is really increasing at a staggering rate. So it is expected to reach around 61% of the global population or 5 billion people in size by the year 2030. So that's a lot of people aspiring to live better lives. Now with these comes middle class spending, which is actually estimated to be around one third of the global economy over this next decade. So that's reaching approximately $36.6 trillion of spending in Asia alone. So that's a lot of consumer dollars, as you can imagine, as you outlined, creates huge opportunities for companies. Right. Because they're going to look to offer products and services to this growing cohort of people within Asia and around the world. So what does that look like? Well, it's not a surprise then to suggest that industries that are likely to benefit from this growing trend are indeed consumer orientated businesses, and particularly within China, given the significant growth rate in their middle class consumers. But there is another interesting industry that I'll probably touch on that really does tap into these better lives, and that's financial services. So it's probably one that you wouldn't necessarily expect to see for better lives. But when you think about it, it's because as wealth grows across these regions, so does the need and possibly the desire for financial services products. So this is going to cover everything from accessing mortgages for the first time where penetration rates, particularly in developing countries, remains low relative to that, of course, in Westernised world. But also use of credit cards where credit access or credit penetration levels are also significantly lower than the developed world counterparts.
Alec: [00:14:05] So that's fascinating. I wouldn't have thought of financial services as as a beneficiary. It makes a lot of sense. So to I guess, to sum up, with longer lives, we discussed health care and automation as two sectors that would benefit from that trend with better lives. We discussed consumer staples and discretionary, especially in Asia and financial services. Before we turn to more lives, we're just going to take a quick break to hear from our sponsors. So, Lauren, before the break, we touched we put our investor cap on and we touched on longer lives and better lives and some of the industries that would benefit from that. Now let's turn to more lives. You mentioned some of the numbers around how many more people the earth is going to have to support in by 2030 and by 2050. And, you know, in Australia we often talk about economic growth being tied to population growth. So I imagine more people will generally lead to general economic growth. But if we get specific in countries or in industries, where do you expect to see a lot of this growth centred?
Lauren Jackson: [00:15:16] Yeah, so this is actually a great theme to dive into a little bit more because you're right, the world population is continuing to grow at a rapid rate, right? So in fact, as I mentioned at the beginning, 8.5 billion by the year 2030. And as you can appreciate, much of this growth is likely to be centred in countries that are emerging or developing rather than developed. So the research is suggesting to us that the epicentre of this growth is going to be moving further away from developed countries like the US, Europe and even here in Australia to other regions like Africa and Asia Pacific. So by 2030 it is possible that we're going to see around 80% of the world's population living across those two regions. And of course, this is going to mean that we're going to need to see increased demand for things like resources. So think food production is going to need to increase by around 70%. Water and energy are also areas that are likely to be in high demand. So even with this concept of more people being quite challenging for us to think about, we do see it as a huge opportunities for companies that can actually look to solve these, I guess, concerns in the future.
Bryce: [00:16:39] Yeah, we did an episode recently on the future of agriculture here in Australia and that stat around the the need for more food. It's crazy. It's crazy to think, but I'm glad that there are companies out there working on ensuring we have enough food. Yes. Yes, very good. So, Lauren, let's turn to some stock specific discussion for for each of the components. Long lives, better lives and more lives. We'd love to get your thoughts on a company that is or an investment that is an interesting opportunity or an interesting way to play that trend. So let's start with longer lives. Can you talk us through an opportunity that Fidelity is finding exciting at the moment?
Lauren Jackson: [00:17:21] Okay. So Alex Gold, who is one of our co portfolio managers for the Fidelity Global Demographic Fund, he really specialises in this longer lives theme. And as we talked about, given our life expectancy is continuing to move out along the spectrum, we do need to find innovative and cost effective solutions for, I guess, businesses and consumers in the future. And so one area that we're really finding exciting here in the healthcare sector in particular is a company called Thermo Fisher. Now, I'm sure some of our listeners might have heard about that by Fisher, but it is a company that is across the entire healthcare ecosystem and actually provides instruments and equipment to do clinical research. So not only that, but they also run trials for a whole range of different businesses as it relates to clinical research. And in the event that those, I guess, trials are successful, they also have the facilities in place to be able to manufacture the drugs for those particular businesses, particularly with what we've seen kind of play out with COVID over the last few years. This is a business that has done exceptionally well and we continue to to see growth into the future.
Alec: [00:18:35] I love that. Now, if people are playing along at home and want to do their own research, New York Stock Exchange ticker tape tomorrow. Lauren, let's turn to the second component of the demographics megatrend, which is better lives. A similar question as Bryce asked before, what's one interesting opportunity, one interesting stock that Fidelity saying in the better lives thematic.
Lauren Jackson: [00:19:02] Yes so better lives again really quite fascinating and as they talked about, I guess taps into this growing middle class wealth. So one of the businesses that we own in the portfolio is an incredible company with an incredible story, and that is Louis LVMH. So Louis Vuitton, Moet Hennessy, one of my favourites. So with the dramatic increase in the middle class population, you'd expect that disposable income obviously increases over time. And we are seeing. These high water people spending more not only on education or services, but also on things like luxury goods. So this has been prevalent in the upper middle class, particularly that in China this business is actually very diversified in nature. So it offers consumers access to obviously quality goods, but at a range of different price points. So if I'm thinking here, let's think send on, you know, a great kind of price point champagne. But also true to wineries like Heinemann Mentale and also at that higher end. So you there's obviously employees and of course, CRU and Dom Pérignon. Not only that, but if you're a jewellery type of girl, you know, LVMH also owns Tiffany and Bulgari. So, again, a really well diversified company in which is continued to be at the cutting edge of luxury goods across the world.
Bryce: [00:20:32] Yeah, well, a lot of those brands you mentioned, there are brands that Rand buys all the time.
Alec: [00:20:36] So as you can see, I am a very fashionable individual.
Bryce: [00:20:42] Yeah. It's one of those companies that just keeps on taking along. And yeah, it's it gets mentioned quite a lot in the show. So not surprising to say that it's interesting on the on the watch list for fidelity so long to close out more lives. What's what's the company that's on the watch list there.
Lauren Jackson: [00:21:00] All right. So over here. So another portfolio manager for the fund, again, looks for quality businesses that really tap into this growing population around the world. Now, as we talk to when you have more lives on the planet, you've really got to solve for some of these shortages, you know, things like resources, food production, you know, energy production and the like. And one of the businesses that we like and own in the portfolio is actually a company called Solar Edge. So Solar Edge is the number one solar inverter company in the world and specialises in products that convert DC Energy, which is produced by solar panels to AC energy, which is what is used by us is the consumer. So this is a business that the cutting edge, particularly as it relates to solar production and is really going to benefit from this growing trend of renewable energy into the future.
Bryce: [00:21:56] Thank you for putting those forward. We love stocks specific stuff here at Equity Mates. So a great way to close out the interview. Now before we jump to our final three questions, Lauren, we'd obviously like to thank you for your time today. It's been a really interesting Mega to unpack. If you would like to hear more from Lauren, you can head to the ASX investor day's both well first one Brisbane this weekend 14th of May Sofitel then Melbourne is the 21st of May Grand Hyatt and then Sydney the 28th of May at the Hilton. Lauren will be there along with many other experts, unpacking what they're currently saying in the investment landscape. Now head to the ASX website to register your details and find out more information. But Lauren, as I said, we love to close out the interview with three final question. So flick it over to Ren to get started.
Alec: [00:22:47] All right. So, Lauren, the first one is, do you have any books that you consider a must read?
Lauren Jackson: [00:22:52] Oh, gosh, there are some brilliant books that I've obviously read across the years, but one in particular that I've definitely found interesting. And I only read this one over the summer break, so a couple months ago. And it's really interesting because of the changing demographic shift that we're not only experiencing here in Australia but also around the world. It's a book called The 100 Year Life. So this is a book that was written by Linda Gratton and Andrew Scott, and it really focuses on the changing demographics and living and working in an age of longevity. So really suggesting some interesting ways how the younger consumers might be approaching their working life in the future.
Alec: [00:23:36] A very on topic as well. So appreciate that one. I haven't heard it, but I heard it recommended before, so I'll add it to the list. The second question we like to ask is just forgetting whether it's a good investment or not. Today, what's the best company you've ever come across? But you did mention before the interview that you might have a few more general traits that Fidelity look for in good companies. So what are some of the what are some of the hallmarks of that fidelity? Look for a good company.
Lauren Jackson: [00:24:05] Yeah, great question. So as we talk to, you know, our teams here at Fidelity do huge amounts of research across the world. So essentially we have over 140 or investment analysts located across every region really trying to uncover new and interesting ideas or great businesses. And when we talk about great businesses, we are really talking about companies that have fantastic balance sheets, competitive advantages or moats around. Their business operating models. You know, they're typically businesses that can to continue to grow their earnings over the medium to long term, particularly if we think about the demographics trends, you know, their businesses, that the earnings tend to be a lot more predictable in nature. So the growth of these organisations can be forecast out for a longer period of time. So yeah, though I can't narrow company down to just one. You know, here at Fidelity, we're looking for those quality businesses that are going to obviously deliver long term shareholder value for our clients.
Alec: [00:25:07] And then final question, in Bryce's intro, he mentioned that you've had over 20 years experience working in the financial services industry across a range of different businesses. So if you think back to when you were getting started in the industry, what advice would you give your younger self?
Lauren Jackson: [00:25:26] Well, what I look at, it's a very simple one and one that I wish I had taken advantage of a lot sooner than I did. But it's this adage of start your investment journey early because the power of compounding is clearly something that, you know is enormous when you've got time on your side. And so for anyone out there who is starting that journey or looking to start their investment journey now, this is the time.
Bryce: [00:25:52] Well, thank you, Lauren. It's been an absolute pleasure and a great way to kick off ASX week here at Equity Mates and we're really excited to meet you in person in Sydney. But also, as I said, if there are, you know, community members within the Equity Mates community and make sure you head to the Brisbane event or the Melbourne event if you're in either of those cities to catch more experts as part of the day. So. Lauren, thank you very much. We appreciate your time today.
Lauren Jackson: [00:26:20] Great to see you guys.