Richard Wiseman, Senior Client Portfolio Manager of the Goldman Sachs Global Millennials Equity Fund, reflects on why the Millennial generation, a global population of 2.3 billion individuals, are critical to the future of the global economy. As consumers, they represent a disruptive force the likes of which we have never seen before.
Who are the Millennials?
Millennials were born from 1980 to 1999 and are in the age group of 20 – 29 year olds. The idea of investing around this Millennial generation concerns two things – their wealth and the fact that they will spend that wealth differently to previous generations. Many Millennials have been in the workforce for 10-15 years so are at a point where collectively, they earn a substantial amount of income. By 2025, this generation will represent 75% of the global workforce and will be the most powerful consumer force on this planet.
What makes Millennials important?
There are 2.3 billion Millennials, 90% of whom are in emerging nations. Millennials have become the most important generation as measured by aggregate income over the last few years. For the next five years, Millennials as consumers will dominate the consumer landscape and will eclipse the spending power of previous generations. We believe they will spend their money differently to previous generations. This is firstly due to technology. They are the first generation of digital natives who use technology to solve life’s problems in a way previous generations could not. They expect innovation to help them and embrace, adopt and catalyse innovation, which gave rise to the sharing economy – car sharing, hotel sharing, etc. The second reason is because Millennials have different lifestyle priorities and care about different things, in particular the environment, climate change and their health. This drives the revenues of companies that are exposed to the values of Millennials and can accommodate what they want.
Why emerging markets are important to this investment opportunity
In China and India there are 415 million and 440 million Millennials respectively, significantly more than any other markets and more than many countries combined, including the US. This is very important for the investment opportunity and will become more important over time as the shift in economic and financial power moves from the west to the east, in particular Asia. This is because of the growth of the middle class, which will represent the Millennial generation. The opportunities in emerging markets are very different to developed markets because Millennials in emerging markets have different priorities. They have more access to technology, better education and better financial prospects, which results in different spending patterns and more disruption.
All generations are adopting Millennial habits
Millennials live much of their lives online through smartphones. This year we’ve all had to do it and we’ve seen huge increases in subscriber growth, data traffic and opportunities for many companies that have online business models. In 2020, we saw more economic and social disruption than we’ve seen for many decades. Some companies benefitted massively and have driven amazing returns for investors. We believe that other generations will adopt Millennial habits as they are better, cheaper and more efficient. Some of this behaviour may stop when we have a vaccine, but much of what happened will be transformational and offers huge opportunity for investors.
What makes Millennials different?
Millennials are putting their money where their mouth is. They are prepared to spend more money on goods and services that match their values, such as sustainably sourced goods and ones that that are good for the environment – this is extremely disruptive in the consumer space. This investment opportunity gives us a very broad range of types of companies and industries to invest in.
Portfolio thematic – capturing a wide range of opportunities
There are two parts to the investment opportunity – technology and lifestyle. These themes are also not dependent on any one part of the market always doing well. So if there comes a time when technology is too expensive or we can’t see any more opportunity in terms of value, then we can overweight the lifestyle part of the portfolio. We will be able to allocate to where we see the best opportunity at the best price, creating a very resilient and broad opportunity set.
Priorities will change as the demographic matures
We believe that Millennials will drive equity returns over the next decade, but think that their influence will be a lot longer than that and that they will be disruptive at every stage of their lifestyle cycle. The Millennial generation and younger people will live longer than previous generations. Their needs will be the same as other generations, but because they will look to innovation and technology to solve their life problems as they get older, we believe they will be disruptive at every stage in their life cycle and believe that this investment thematic offers very long-term opportunities to invest in companies with superior return potential.