Demographics have an impact on asset allocation
Demographic change has impacted asset allocation decisions for three-quarters (74%) of global investors over the past three years and almost all (95%) believe it will have a greater influence on investment decision-making over the next decade, according to a recent survey.
By region, 83% of investors in Asia indicated that demographic change has already had an impact on asset allocation, compared to 78% in Europe and 42% in the United States, according to the report published by BNP Paribas Asset Management. (BNPP AM). The impact was most pronounced among intermediate investors, with 86% saying it had already been factored into investment choices, compared to 69% of institutional investors.
Almost all investors surveyed (95%) cited the acceleration of digital and new technologies as a significant change shaping their investment strategies, followed closely by the impact of an aging population (91%), in consumer spending habits (89%) and population growth. in emerging markets (86%).
These results also reflect the most attractive sectors identified by the respondents. Healthcare was identified by almost all investors (91%) as “significantly attractive”, followed by technology (84%), energy (67%), agribusiness (63%), leisure and tourism (60%) and real estate (59%). Their growing attractiveness, notes the BNPP AM report, is also linked to the pandemic and climate change.
Main regional differences:
- Health care was considered more important in Europe and Asia (95% each) than in the United States (75%).
- Technology, telecommunications and computing were more important in Asia (93%) than in Europe (81%) and the United States (75%).
- For investors in Asia, population growth in emerging markets is seen as an “extremely important” aspect of demographic change for investment strategy by half of respondents (51%), compared to 21% in Europe and 15% in the USA.
- Diversity and equality are rated as “extremely important” by 30% of US investors, compared to 24% in Asia and 17% in Europe.
Institutional investors indicated that equities (52%), real estate (50%) and infrastructure (47%) were the asset classes most likely to benefit from allocations due to demographic change, while for Intermediate investors, thematic investments were in the lead (63%), followed by equities (53%) and infrastructure (47%). The results showed broadly equal preferences for changing allocations to active and passive strategies over the next 10 years, and across regions.
Demographic change was identified as an investment opportunity by nearly 60% of investors surveyed and as a risk by 20%; and, therefore, there was a mix of preferences for taking on increased or reduced investment risk in the future. Investor preference in Asia was for lower investment risk (39%), compared to expected higher investment risk in the US and Europe (17% each).
“The survey results show how demographic shifts and asset allocation considerations are linked to the steady acceleration of technology and the focus on sustainability, which requires a fundamental reallocation of capital. “, says Sandro Pierri, CEO of BNPP AM. . “This will require a profound transformation of the investment industry to address issues such as funding the pension deficit, shifting from wealth creation to wealth preservation tailored to clients’ risk profiles, or in place of a more digital way of investing.”