Healthcare - Baby Boomers Driving Growth

I was thinking about things recently and as I am 35 years old and wanting to retire in my mid-50s, I was asking myself what can I invest in now that will potentially allow me to make extra-ordinary returns in the stock market over the next 10-20 years.  Put another way, what industries or technologies are going to play a large role in our lives over the upcoming decades?  My initial evaluation based on everything I have seen are as follows:

• Healthcare - Especially in the USA baby boomers are coming of age where their reliance on healthcare and healthcare services is only going to increase.

 

• Technology - This is a given obviously.  Think of the rate of advancement between 2000-2020.  Imagine where we will be in 2040 considering the rate of technological advancement is happening at an incredible rate.  Areas of growth include:
  1. AI
  2. VR
  3. Voice
  4. Cyber Security

 

• Retail eCommerce - If you look at the past 10-20 years, look at the impact that the likes of Amazon and Alibaba have done to the consumer buying patterns and how they learn about and receive their products.  What will the next 10-20 years look like?  Will we see a continual market erosion of brick and mortar shopping experiences.  Will some Commercial REITs be at risk?

 

• Renewable Energy
  1. Solar
  2. Wind
  3. Electric Vehicles

 

• Space Exploration - Strongly believe we will have commercialized space exploration over the next 10-20 years, if not sooner.  

 

• Storage - Population is growing.  Recent CNN article shows our population is in a growing pattern at least for the next 50 years.  In particular, I believe we need to focus on food storage.  More people means more mouths to feed. 

 

• Industries Impact by Changing Work Environment - I believe we were already on the path to a flexible work environment, however, COVID-19 pandemic has fueled this conversation.  Working from home is going to become more prevalent.  What industries will be impacted by this?  Less traffic and impact on infrastructure and transportation. Commercial properties will take a hit.  Restaurants and surrounding commerce to businesses will suffer.  

Obviously, knowone knows which particular industries and trajectory of growth of companies that exist or will exist in the future.  However, I want to focus on Healthcare for this blog post.  There are two things guaranteed in life.  Death and taxes!  The US population is aging, in particular Baby Boomers.  Let's look at some quick facts about Baby Boomers in the USA:

• Baby Boomers are the group individuals born between 1946 and 1964.  In 2020, that puts Baby Boomers in the age range of 56 to 74 years old.  

 

• Average life expectancy in the USA is 78 years old.  Therefore, Boomers on the older spectrum of this age range are accessing healthcare and healthcare facilities more regularly.   

 

• According to the U.S. Census Bureau, by 2050, there will be 83.7 million people aged 65 and older, almost double the 43.1 million seniors in 2012. Such a dramatic increase is expected to have a huge impact on the healthcare industry, not only due to the sheer numbers, but also because of the rapidly declining health of those over the age of 65.

 

• In 2018, more than $3.6 trillion — or almost 18% — of GDP was spent on healthcare in the U.S. Going by data from the  Centers for Medicare & Medicaid Services (CMS), healthcare spending will grow to $6 trillion, or 19% percent of the economy, by 2027.

 

• Projections from the U.S. Census Bureau indicates that in 2034, for the first time in U.S. history, older people will actually outnumber children under age 18.

 

• The American Hospital Association (AHA) figures that by 2030, a quarter of all boomers, about 14 million, will live with diabetes, and 33% (21 million) will be obese. About 50% of these boomers will find themselves suffering from arthritis, while 60% of them will seek out treatment options for their multiple chronic disorders.

 

• In 2018, there were an estimated 142 million visits to emergency rooms in the United States, up from 100 million in 2008. Hospital admissions are also set to double by 2030.

So what does this all mean?  In my view it is simple, over the next 10-20 years we are going to see an ENORMOUS amount of spending around healthcare and healthcare facilities.  The question is whether we will be able to keep pace with the demand of hospitalizations, prescription drugs, assisted living facilities, aged care etc.  Based on this, I believe Healthcare is going to have a large growth trajectory from a sector standpoint within financial markets. From an investment standpoint, when I read these bullet points the first thing that came to mind was Healthcare REITs.  The last bullet point alone should scare all of us.  If it holds true that means an estimated 284 million emergency room visits will be occurring annually by 2030.  According to American Hospital Association, there are a total of 6,146 hospitals in the USA.  Simple math, assuming no new hospitals (very unlikely), would say that would mean each hospital would take in an additional 23,104 ER visits annually or 63 visits per day.     

By 2030, the baby boomer age range will be between 66 and 84 years old.  This is a MASSIVE opportunity to get invested into Healthcare REITs.  The easiest way to do this without having to put forth many hours of research is to look for an ETF called “The Long-Term Care ETF (Symbol: OLD).  Parent company is Janus Henderson Investors, and based on the ETF overview on their website, “The Long-Term Care ETF seeks exposure to companies globally that are positioned to profit from providing long-term care to the aging population. These include companies owning or operating senior living facilities, nursing services, specialty hospitals or senior housing, as well as biotech companies for age-related illnesses and companies that sell products and services to such facilities.”


Relatively new ETF that up until this year was trending nicely from a return standpoint:

The returns for this year are not a big concern from my viewpoint and over the long term I believe will return handsomely.

If you are more of an individual stock type investor I have a few companies I have identified that I believe have a solid foundation for growth over the next decade.  Below are a few Healthcare REITs that I really like:

1. LTC Properties Inc (LTC)
   
2. National Health Investors (NHI)
   

I selected these 2 REITs based on a set of criteria that included historical returns, debt levels, how they invest their capital and what returns they get on their investment, net profit margin, and what percentage of their cash flow from operations goes towards their dividend payouts.  I have a breakdown of the table on the next page as a reference.