As the world's population ages, these under-the-radar names could benefit

CNBC

2 days ago

The aging population has implications for the markets around the world. Yet it isn't just health-care companies and senior living facilities that will reap the benefits. Financial companies also stand to gain as demographics shift, according to Morgan Stanley and UBS. As longevity increases and fertility rates fall, the oldest generation will represent an increasingly larger part of the world's total population. In the United States, those aged 65 and older made up about 17% of the population in 2020. They are expected to represent 21% of the population by 2030 — and the percentage will keep climbing through 2060, according to the Census Bureau . UBS calls this one of three " transformational innovation opportunities " that will drive stocks in the next decade. The firm estimates the annual longevity market opportunity will grow by an incremental $2.5 trillion to reach $8 trillion in total revenue by 2030. While its current longevity portfolio consists of largely health-care companies, it sees opportunity for financials as well. "Financial services is affected by longevity by helping individuals plan for extended lifespans," a team of strategists in UBS' chief investment officer wrote in a March 26 note. "Diversified financials, insurers, and banks are driving innovation in retirement planning and financial resilience." Meanwhile, Morgan Stanley believes the expectations for increasing lifespan can have "significant ramifications across the asset and wealth management industry," said analyst Michael Cyprys. It anticipates retirement planning by the aging population can unlock an incremental $400 billion in revenue by 2028 for the businesses. "We see this today driving product innovation. It's influencing asset allocation strategies and creating new market opportunities," Cyprus told CNBC. "As people are living longer, investment time horizons need to extend over which people will then accumulate a nest egg right to prepare them for retirement." There will also be a need for help drawing down on income, when the time comes, and ensuring that people don't outlive their retirement income. "We think about the affluent group needing the most increase in services, especially if government pension funds and such come under pressure, Social Security and otherwise, and this could create a bull market for financial advice," he said. Asset manager plays When determining which asset managers stand out from their peers, Morgan Stanley looked at the solutions they offered, access to alternatives, insurance and the ability to connect to customers in the retirement channel. "We think that having alternative investment capability is going to key here in terms of helping address longevity risk and providing income and retirement solutions," Cyprys said. "Private market players, broadly speaking, should be well placed, particularly those with exposure to private credit and exposure to real assets and real estate and infrastructure, as well as those that have a meaningful presence in the wealth, private wealth channel." Two names that stand out are Blackstone and Brookfield , both rated overweight at Morgan Stanley. BX YTD mountain Blackstone year to date Beyond alternative investments, the two companies also offer annuities , which provide a guaranteed income stream, Cyprus pointed out. Brookfield owns an annuity-writing company and Blackstone partners with insurance companies, he said. He has a $150 price target on Blackstone, suggesting 8% upside from Friday's close, and a $66 price target on Brookfield, implying nearly 6% upside. Cyprys also has an overweight rating on BlackRock . His $1,111 price target suggests the stock can move 13% higher from Friday's close. The company has alternative investment capabilities and has very broad-based offerings of multi-asset solutions across channels, he said. "They are also early in the market with some interesting, innovative products," Cyprus said. "They have this LifePath Paycheck, which basically embeds an income stream for life within a target date fund, because they partnered with some insurance companies that have helped embed an annuity into the target date fund." BLK YTD mountain BlackRock year to date Shares of BlackRock are down more than 4% year to date, while Blackstone's stock lost more than 19% and Brookfield is up marginally so far this year. Wealth managers in the spotlight When it comes to wealth managers, LPL Financial and Charles Schwab should both benefit from the increased demand for financial advice, Cyprys said. He has overweight ratings on both stocks. "If there is a rising tide for financial advice on the back of aging populations and greater need to manage to prepare for retirement, that's only going to lead to greater need, potentially, for financial advice from which LPL and Schwab could both benefit from," he said. While LPL has 16% upside to his $450 price target, as of Friday's close, Schwab has bypassed his current $83 price target. SCHW YTD mountain Charles Schwab year to date Schwab has two businesses — it acts as custodian for financial advisors and it offers a direct-to-consumer business. The company is increasingly bringing advice into the latter, which will be key, Cyprys said. LPL basically acts as a broker for financial advisors and offers a slew of services, he said. Charles Schwab's stock has gained nearly 18% year to date, while LPL Financial rose about 15%. Bank of America is also a name Morgan Stanley likes as a play on the aging population. "On longevity, BAC's scaled tech and services breadth mean the firm is well-suited to take advantage of opportunities presented by the mass affluents' growing need for tailored retirement strategies (and the associated education around such investments)," the team wrote in an October report. Analyst Betsy Graseck has an overweight rating and $47 price target on the stock, suggesting more than 6% upside from Friday's close. Shares are down fractionally so far this year.