In association with Harbour Asset Management.
Are you making the most out of your investments? Some sectors or ‘megatrends’ are riding the growth wave, and now is the time to invest, says Harbour Asset’s Shane Solly.
These industries, says Shane Solly, portfolio manager at Harbour Asset Management, have a healthy future in the medium term and will give managed fund investors the edge over peers with money invested in passive index tracking funds.
“At Harbour, we prefer to invest in businesses that can’t be disrupted easily,” he says. “As an investment philosophy, we look for sectors with consistent, sustainable growing returns, and the retirement village industry stacks up well on these factors.”
One positive for investors is that the retirement village and aged care sector is facing a tidal wave of demand as the baby boomers age and start to consider their retirement living options, says Solly. What’s more, the providers are well regulated through the Retirement Villages Act, which provides an excellent framework for the industry.
Another benefit of investing in this sector is that the industry has done a great job preparing itself for the next generation of residents. Most new developments now include aged care facilities, which are becoming a key consideration for 75-plus-year-olds, he says.
As a result of these trends, industry growth in this sector is likely to continue to exceed that of the broader economy over the next decade.
This is good news for active investment managers, such as Harbour. By recognising the fortunes of these industries and individual companies within them, active managers can make hay in a way that passive funds can’t.
That means Harbour’s managers can seek to invest in these growth-oriented sectors and weight their portfolios accordingly.
“Retirement care might make up 9% of a benchmark index, but Harbour is more likely to have more of its funds in this sector, because of its superior growth prospects,” he says. Passive funds that track the index don’t have the luxury of picking and choosing sectors and companies to back.
Despite its many investment attributes, the retirement industry is not a licence to print money. Like everything, it does have its risks. For example, recent market volatility has worried some private investors. However, an active manager can see the bigger picture and recognises that this volatility reflects shorter-term issues, such as changes to migration, non-resident home buying restrictions and wage inflation.
Another consideration an active manager weighs up is the potential cooling of the housing market, which can result in future residents delaying their purchases. The industry banks on capital gain from units as residents move on and units are resold. Demand could slow if buyers wait to sell their existing properties.
The good news for investors is that aged care facilities have different drivers and may not be affected by stagnant house price growth.
“Moving to a retirement village or care facility offers safety, security, a like-minded community, activity programmes, freedom from maintenance, and access onsite to differing degrees of care,” says Solly.
“While some of these factors can be supplied in a resident’s home, they can be delivered to a high standard in retirement and aged care accommodation.” Research shows that residents are less isolated socially and as a result live longer fuller lives.
Not all retirement village operators are positioned equally to take advantage of the opportunities. Unlike passive funds, active managers can cherry-pick the best companies that do a great job for residents and look after their needs first.
For more information go to Harbour Asset Management.