A healthier future? How current spending patterns could point the way

Are we headed for a more health conscious future? Current spending patterns – and especially those of ‘generation Z’ consumers – appear to suggest so.

According to Morgan Stanley, spending on sports apparel rose from US$199.1m in 2009 to US$314.1m in 2017 and is projected to reach US$365.2m by 2020. However, this is just a small segment of the wellness and fitness industry, which in the UK alone is estimated to reach a value of £22.8bn by 2020, according to Statisa. Gym membership is also on the rise. Figures from The Leisure Database Company suggest one in seven of people in the UK now regularly work out.

We believe food consumption habits are another leading indicator for future health spend. Fresh foods such as salads and juices are taking the place of canned and refrigerated goods in the shopping baskets of young consumers. Data from Barclay’s suggests Generation Z consumers are buying 57% more tofu and 550% more dairy-free milk than older cohorts.

Meanwhile, pharmaceutical companies are also beginning to get in on the game: over-the-counter medication and health supplements continue to gain traction as consumers demonstrate a preference for preventative healthcare over traditional prescriptions.

Amy Chamberlain and Stephen Rowntree – global analysts. Newton, a BNY Mellon company

Are we headed for a more health conscious future? Current spending patterns – and especially those of ‘generation Z’ consumers – appear to suggest so. According to Morgan Stanley, spending on sports apparel rose from US$199.1m in 2009 to US$314.1m in 2017 and is projected to reach US$365.2m by 2020. However, this is just a small segment of the wellness … read more

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All hail our algorithmic overlords?

Artificial intelligence (AI) is frequently touted as having the potential to revolutionise every aspect of our daily lives from work to leisure time; commuting to healthcare. Less optimistically, though, luminaries such as Elon Musk among many others have drawn attention to the possible dangers of AI: that by creating the singularity we risk ‘summoning a demon’ that ultimately consigns humanity to oblivion.

We take a more optimistic view, noting that while emerging technologies have often given rise to scare stories about their impact on people’s health and behaviour their benefits have usually outweighed the drawbacks.

For now – and even though it’s still in its infancy – we can highlight how effective AI has been in the fields of healthcare diagnostics, medicine prescriptions, and air travel. For the future, we believe AI is likely to give companies a second wind when it comes to productivity, allowing them to be more efficient, better, faster and actually quite creative in how they transform their offerings.

This in turn should improve growth and therefore, hopefully, generate new kinds of jobs. Far from creating a techno-apocalypse I think AI has the power to transform the world for the better and not for the worse.

April LaRusse – Fixed Income product specialist. Insight Investment, a BNY Mellon company

Artificial intelligence (AI) is frequently touted as having the potential to revolutionise every aspect of our daily lives from work to leisure time; commuting to healthcare. Less optimistically, though, luminaries such as Elon Musk among many others have drawn attention to the possible dangers of AI: that by creating the singularity we risk ‘summoning a demon’ that ultimately consigns humanity … read more

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Emerging markets play leapfrog, but how?

The smartphone has broken down market barriers and created rapid change in various industries. For emerging market economies, the technology has given consumers a powerful tool, allowing emerging market companies to surpass their developed counterparts in some sectors as they leapfrog traditional business models. In China, mobile applications such as Alipay and WeChat have created platforms that are deeply integrated into people’s lives and, as a result, mobile payments are soaring. In Africa McKinsey forecast that 450 million people will be using mobile banking within the next five years, meaning there is little need for physical branch infrastructure. For remittance flows, mobile applications allow the easy transfer of money, creating significant capital flows from the developed to emerging world as workers send money home. This is an evolution which has only just begun and which will increasingly blur the lines between the developed and emerging world, forcing investors to change how they think about the opportunity set available in the latter.

Colm McDonagh – head of Emerging Market Fixed Income. Insight Investment, a BNY Mellon company

The smartphone has broken down market barriers and created rapid change in various industries. For emerging market economies, the technology has given consumers a powerful tool, allowing emerging market companies to surpass their developed counterparts in some sectors as they leapfrog traditional business models. In China, mobile applications such as Alipay and WeChat have created platforms that are deeply integrated … read more

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How baby boomers are changing our cities

As the baby boomer generation ages, increasingly the idyllic countryside retirement is being replaced by city-based retirement. Compelling the move back into the heart of cities is greater access to the arts, better healthcare and less reliance on the need to drive. It is this trend of re-urbanisation that is adding to swelling city populations and in turn, increasing infrastructure demands and service needs.

Cities are not physically growing in size, it is the numbers living in them that is swelling and this creates a plethora of issues and potential problems – from environmental to social.

Hospitals, rehabilitation centres and assisted living facilities will be needed to service this aging population. Unlike other sectors facing the rise of the digital age, real estate is a prerequisite. Much of the infrastructure needed for this tectonic demographic shift has yet to be built and we are on the cusp of a construction buildout across the country that will facilitate the way our aging population lives. For example, growth in the senior population will necessitate the need for a 30% increase in hospital beds by 2030.

One of the resources that will be stretched by this trend is water. There is no operational leverage in water; each individual requires two litres of water to sustain life every day. The more people push into cities the greater the amount of water we’re going to need to transmit into those cities.

Jim Lydotes – The Boston Company, part of BNY Mellon Asset Management North America.

As the baby boomer generation ages, increasingly the idyllic countryside retirement is being replaced by city-based retirement. Compelling the move back into the heart of cities is greater access to the arts, better healthcare and less reliance on the need to drive. It is this trend of re-urbanisation that is adding to swelling city populations and in turn, increasing infrastructure … read more

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Feeling the squeeze: is it crunch time for Generation X?

In some ways Generation X is caught between a rock and a hard place, facing a squeeze from a range of shifting social and demographic factors and financial pressures. From a financial perspective, rising longevity is just one factor, with improvements in technology, science and health provision meaning people are living longer and requiring more and more capital. More specifically, the issue of wealth transfer from the Baby Boomer generation is also becoming increasingly important. In future, Baby Boomers who are already pondering whether to transfer assets to their own children or the next generation of Millennial grandchildren could well opt to do the latter.

Against this backdrop, those in generation X will increasingly need to work out what their long-term financial and retirement requirements are and identify solutions to support this while protecting their existing capital. But, while these people need to be invested to grow their wealth and grow their income in the longer term, their investment choices may not be easy. Annuity rates have fallen in recent years and mainstream investment markets have also seen equity prices become extended over time and returns from bonds become low by historic standards. With other pressures such as inflation looming, a range of other more sustainable and long-term alternative investment options may increasingly come into focus.

Freeman Le Page – investment specialist and SRI client director and Nick Moss, portfolio manager multi-asset team. Newton, a BNY Mellon company

In some ways Generation X is caught between a rock and a hard place, facing a squeeze from a range of shifting social and demographic factors and financial pressures. From a financial perspective, rising longevity is just one factor, with improvements in technology, science and health provision meaning people are living longer and requiring more and more capital. More specifically, … read more

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Millennials: we’ve never had it so tough

For millennials* the financial headwinds are legion. Previous generations grew up with the understanding that they should never need to spend more than a third of their income on rent or housing costs. Now consider the case for millennials who are looking at having to allocate some 45% of their income just to keep a roof over their heads. A second punch to the gut is student debt. Right now there’s some US$1.5 trillion in student debt outstanding and the average student loan per capita for a millennial is just over US$37,000 dollars.

Against this background, US home prices have increased 29% since 2000 but millennials’ real median income has only gone up by 1%.

With a triple whammy of higher housing costs, rising debt and lower wages we think it’s no exaggeration to say millennials have it hard.

Chris Kelly – head of Commercial Real Estate. Amherst, a BNY Mellon company

*Defined as individuals born between 1982 and 2000.

For millennials* the financial headwinds are legion. Previous generations grew up with the understanding that they should never need to spend more than a third of their income on rent or housing costs. Now consider the case for millennials who are looking at having to allocate some 45% of their income just to keep a roof over their heads. A … read more

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MarketEye: Why Trump’s popularity is up c.5% since start of the year

Defined as an ideological movement that says citizens are being disadvantaged and mistreated by a small group of privileged elite, it is easy to see why populism has been on the rise.

In the US, real wages for middle- and low-wage earners have been stagnant for more than a decade, yet the top 5% of earners have experienced a significant increase over the same period. If you see a neighbour that is doing really well and you feel you are struggling then that is when people tend to get dissatisfied.

This period has also coincided with the post-financial crisis recession and the slowest recovery from a recession in close to 100 years. Populism was seen as one of the key drivers behind the election of President Donald Trump in November 2016, but it is not solely the US that has seen it rise. Changes in the type of manifesto individuals are elected on can bring changes in policy, which in turn has an impact on stock markets.

Now we have a ‘populist’ president and he has different policies and methods of communicating with the electorate. He is seen as controversial, but despite his style and approach, he has been successful in terms of getting some of his key policies enacted. Apart from Obamacare reform, he has succeeded in lowering the corporate tax rate, allowing US companies to repatriate earnings at a low tax rate, and commencing regulatory reform.

We view the majority of his headline policies as pro-growth and pro-business and therefore see opportunities in the US equity market.

Chuck Cook – portfolio strategist. BNY Mellon Asset Management North America 

Defined as an ideological movement that says citizens are being disadvantaged and mistreated by a small group of privileged elite, it is easy to see why populism has been on the rise. In the US, real wages for middle- and low-wage earners have been stagnant for more than a decade, yet the top 5% of earners have experienced a significant … read more

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The US$3.8trillion bond sector you might not even know about

This past year, 2017 leading into 2018, the US saw a lot of significant weather events and climate disasters. It saw three hurricanes: Harvey in Texas, Irma hit Florida and Hurricane Maria in Puerto Rico. The combined damage of those three hurricanes was around US$203bn. That has an impact on the economies of those states, the infrastructure of those communities and their tax and revenue bases.

The US also saw tornados, flooding, and on the east coast, serious winter storms. Forgotten vocabulary is coming back into the lexicon, like ‘bombogenesis’, which means bomb cyclone. The east coast of the US was hit with two of those in 2017/18 – the last time it had storms of that sort was several decades ago.

The states suffering from such climate crises really know the impact of climate change and what it can do to their communities. So in response to the Trump administration’s withdrawal from the Paris Accord, several states started the Climate Alliance. California, Washington and New York kicked it off, then were joined by 13 others (plus Puerto Rico). Their goal is to meet the Paris Accord targets – to decrease emissions by 26% to 28% from a 2015 base line by 2025.

The GDP of these states makes them comparable to many sovereign economies – California has a GDP approximately the size of France and New York is equivalent to Canada. They also have their own constitutions, law-making abilities and taxes. To fund infrastructure projects, which include climate change initiatives, they issue bonds.

These so-called municipal bonds are a diverse set and have already funded a huge amount of US infrastructure maintenance and renewal. At US$3.8 trillion, the municipal bond market is almost half the size of the US corporate bond market and we don’t see it getting smaller, particularly as the challenges of managing climate change continue or, potentially, intensify.

Dan Rabasco – Chief Investment Officer for Tax Sensitive Fixed Income. BNY Mellon Asset Management North America 

This past year, 2017 leading into 2018, the US saw a lot of significant weather events and climate disasters. It saw three hurricanes: Harvey in Texas, Irma hit Florida and Hurricane Maria in Puerto Rico. The combined damage of those three hurricanes was around US$203bn. That has an impact on the economies of those states, the infrastructure of those communities … read more

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Tobacco: a slow-burn success story?

For all the challenges the industry has faced tobacco has remained attractive for investors. Now, in the face of ongoing litigation, a crack-down on advertising, smoking bans, and even plain packaging, the industry is reinventing itself through new heat-not burn and vaping products.

We continue to believe these could create an inflection point for the industry, offering a route out for smokers looking to quit harmful combustible cigarettes but also allowing tobacco companies to build new revenues with products that are less detrimental to health.

Should they succeed we see tobacco producers continuing at the apex of a market where competition is limited and where profitability consequently remains extremely robust. In our bull-case scenario, smokers will consider the risk/reward dynamics of their habit and decide to migrate en masse to next-generation products. The significantly reduced harm of these new products keeps them in the category – meaning the combined volumes of combustibles and next-generation products stabilise or even rise.

Amy Chamberlain – global analyst. Newton, a BNY Mellon company

For all the challenges the industry has faced tobacco has remained attractive for investors. Now, in the face of ongoing litigation, a crack-down on advertising, smoking bans, and even plain packaging, the industry is reinventing itself through new heat-not burn and vaping products. We continue to believe these could create an inflection point for the industry, offering a route out … read more

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Dispelling the myth: Volatility can be positive for returns

In 2017, the global economy transitioned from a period of sluggish, US-dominated growth, to a more synchronised global recovery. With inflation still well behaved, corporate earnings grew strongly, buoying both equity and credit markets and suppressing volatility, which reached historically low levels.  So far, 2018 has proved more challenging for some investors. Volatility spiked in the first quarter, driven by the unwinding of US volatility products and then compounded by an increase in global trade tensions and profit taking in US technology stocks. Unanticipated volatility spikes generally hurt in the near term, but they can also offer opportunities. Although generally short lived, the fear of loss among investors drives risk appetite downwards, and derivatives markets become dominated by those looking to hedge against downside risk. As a result, risk premia in option pricing can become elevated and this can create greater opportunity for alternative, option-based strategies to deliver positive returns.

Steve Waddington – portfolio manager. Insight Investment, a BNY Mellon company

 

In 2017, the global economy transitioned from a period of sluggish, US-dominated growth, to a more synchronised global recovery. With inflation still well behaved, corporate earnings grew strongly, buoying both equity and credit markets and suppressing volatility, which reached historically low levels.  So far, 2018 has proved more challenging for some investors. Volatility spiked in the first quarter, driven by … read more

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