World is Aging: ETF XLV

Bond [채권]/ETF

by Seungyun/Analyst 2024. 9. 5. 08:28

In this investment research report, we will explore the global aging society and the investment opportunities it presents. Whether you are planning for retirement or seeking long-term stock investments, this report will offer valuable insights.

We're often reminded that no investment comes with a 100% guarantee of success; everything can change suddenly when the fundamental assumptions shift. I agree with this sentiment. However, if we carefully observe our surroundings, we can still identify investment opportunities that are unlikely to fail, as the underlying environment is unlikely to change within our lifetimes.

It's the Healthcare Industry. Consumption driven by survival instinct is rarely compromised by individuals, as most living creatures prioritize decisions that ensure their survival above all other needs.

When we run out of money, what would we stop spending on first but continue to buy among a smartphone, luxury bag, shoes, and diabetes pills? Most likely, the order would be luxury bag, smartphone, and then shoes, while continuing to purchase the diabetes pills. The exact order might vary depending on the individual, but it's hard to imagine giving up essential medication to buy shoes or a smartphone.

The fact that people will continue purchasing essential medications isn't enough on its own to justify an investment. To execute investment, we need to discuss the possible revenue growth in the industry. Now, let's go deeper into the topic and discuss why we need to invest in healthcare industry.

We’ve all heard about the Population Pyramid in school. From an economic perspective, we can say that Stages 1 & 2 are favorable, while Stages 3 & 4 present challenges. In Stages 1 & 2, a larger portion of the population is economically active, driving growth and productivity. In contrast, Stages 3 & 4 see a higher number of dependents, which leads to increased costs and tax burdens with fewer working individuals to support them.

We can say China, India, USA and Japan are the half of entire human population in the Earth and now let's see their population pyramid structures.

China and Japan have already entered Stage 4 of the Population Pyramid, while the US is currently transitioning through Stage 3. India's population structure is also at Stage 4, but its average age remains relatively low compared to China and Japan. Most developed countries, including Korea, France, Italy, and Germany are going through Stage 3 and 4 population structures.

So what does it mean to all of us?

As countries which take more than half of the entire human population are going through Stage 3 & 4, the world population pyramid is now at Stage 3. Furthermore, for the first time in a century, last year, we faced a birth rate decrease, which means we will eventually reach the stage 4 at very high possbility. What does the changing in population pyramid mean to the investors?

This shift means that the average age of consumers is changing,

which in turn will alter the types of goods and services that are most in demand.

As the primary consumer base evolves, it's crucial to anticipate future demands. Older adults often prioritize healthcare and wellness products due to their ongoing medical needs. Unlike younger consumers who may spend on technology or fashion, older individuals typically allocate more of their budget to healthcare services, medications, and treatments. This shift underscores the growing importance of investing in sectors that cater to aging populations, such as healthcare and pharmaceuticals.

Healthcare Expenditure in the US from National Library of Medicine

According to the National Library of Medicine, people aged 65 and over spend more than twice as much on healthcare compared to any other age groups between 0 and 65. It means that as society continues to age, cash in the market is likely to increasingly flow into the healthcare sector.

The increasing prevalence of Cancer and Hearing Loss cases in the US prove that the society is aging rapidly.

Source: Volume 397, Issue 10278p 996-1009 March 13, 2021

To hop on the train to aging society and execute investment, we can invest in ETF: XLV

Investment Point

Not only in the US but globally, human civilization is aging, leading to a rapid increase in the consumption of healthcare systems and supplies. This results in a growing and stable cash flow into the healthcare sector, presenting investors with opportunities to benefit from this trend.
Established pharmaceutical and medical companies in the US sell products not only domestically but also in various international markets. This means that investors can still benefit from the global aging society through investing in XLV.

Risk

The price of XLV has increased rapidly due to significant events involving some of the companies in the fund, such as UNITEDHEALTH GROUP INC and ELI LILLY + CO .However, this surge may lead to a price correction in the future. It’s advisable to approach this ETF with a strategy of staggered buying to manage potential volatility and maximize investment opportunities.

Ticker and Full Name	XLV: The Health Care Select Sector SPDR® Fund
Nav as Aug 29, 2024	$155.76
Expense Ratio	0.09%
Investment Objective	The Health Care Select Sector SPDR® Fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Health Care Select Sector Index (the “Index”) The Index seeks to provide an effective representation of the health care sector of the S&P 500 Index Seeks to provide precise exposure to companies in the pharmaceuticals; health care equipment and supplies; health care providers and services; biotechnology; life sciences tools and services; and health care technology industries Allows investors to take strategic or tactical positions at a more targeted level than traditional style based investing
Why XLV?	The ETF assists with preparing for old aging global society.