Millennials are set to come into a LOT of money… but which stocks will benefit from their newfound wealth?
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Millennials are gradually causing a seismic shift in Australia and its changing the commercial landscape like never before.
In the next 30+ years millennials will inherit up to $30 trillion dollars in assets from Baby Boomers. That is 50 per cent more than America’s Annual GDP. On top of that they will be entering their prime spending years.
While some companies are adapting to benefit from the rise of this new economic paradigm, others are going to be left behind, and because there’s no clear consensus on what millennials want its hard to pick winners and losers.
Stockhead spoke with fund managers this week about which industries and stocks they think could gain or lose.
Bombora’s chief investment officer Gregg Taylor is one such fund manager who is seeing this inter-generational movement of wealth. He said the shift is “changing all aspects of commerce”.
“The trend is real and is happening now, though it’s very much expected to be ongoing,” he said. “The growth opportunity should be significant for the next 10+ years for well positioned and managed companies.”
Taylor shared with Stockhead a few of Bombora’s picks. The first is Uniti Wireless (ASX:UWL), which listed in February and has gained over 500 per cent.
“With millennials consuming an ever increasing level of data with their media consumption and spending habits, the need for a high speed internet is an attractive opportunity,” he said.
“We believe the market opportunity for a challenger to the NBN is significant and Uniti Wireless is perfectly positioned to take this opportunity.”
Second was ed-tech company Janison Education (ASX:JAN), which offers online learning for corporate and digital testing platforms for education. Taylor noted that JAN was the platform that ran the NAPLAN testing and recently entered into a digital testing agreement with the OECD.
Third, he mentioned payments processing business EML Payments (ASX:EML).
“EML benefits from the shift to online payments by offering an outsourced technology platform for global businesses,” Taylor said.
“EML is a proven global business with a significant pipeline of ongoing global growth opportunities.”
Taylor said that Bombora also had a position in Vamp — a pre-IPO company connecting brands with social media influencers.
But there will also be losers from this movement of wealth and Stockhead spoke with Peak Asset Management’s Niv Dagan about them.
He believes bricks and mortar stores are the most vulnerable.
“Those companies that don’t have a strong e-commerce presence and aren’t using social media to engage are simply being left behind,” Dagan said.
“We expect companies to utilise AI and virtual/augmented reality more in the way they engage with consumers.”
Bombora’s Taylor warned that diversification was the key for a portfolio and aspiring capital recipients had to meet their investment criteria.
“At Bombora we tend to focus on companies that have commercialised the technology and prove that they are solving a real problem,” he said.
“We also look for companies that can compete in the global market and their customer opportunities are global, making the size of the prize more interesting.
“The quality of the people and the valuation are also key factors in the investment decision.”
However, he warned that there were many “solutions” being created to take advantage of these opportunities, but it was not clear that all of these solutions were really solving a “problem”.
“The idea may be appealing and the technology impressive, though true commercialisation of the disruptive business may struggle to reach scale as customers are not incentivised to transact due to the limited utility of the solution relative to other challenges the client is facing,” Taylor said.
One of the key differences why it may seem unappealing to target millennials is lower incomes. Millennials are the first generation in a long time to earn less than their parents.
But instead of waiting until they can afford it, or giving up, millennials want the best life now.
Finn Kelly, CEO of millennial-focused financial adviser Wealth Enhancers, tells prospective clients it is possible.
“Most of us never get close to our dreams, instead we settle and sacrifice – convincing ourselves that we’re just not meant to have that kind of life,” he said.
“I’ll say bullshit to that. If you’re living for the future you’re effectively throwing away the time in your life when you have youth, energy and freedom on your side!”
Millennials, as customers and investors, also want authenticity. This will mean businesses delivering exactly what they say they will.
Millennials have turned off Facebook more than any other generation since the Cambridge Analytica scandal. This came from the realisation that Facebook had hidden its entire business model from them. Either Facebook didn’t inform them that its was reselling their data or if it did, made it far less clear than necessary.
Several recent interviewees of Stockhead’s (particularly in the recent Ethical Investing series) several interviewees, including Goodments CEO Tom Culver and TasEthical advisor Stuart Barry, pointed to a distrust of tech.
Although Barry’s clients were mostly retirees, his comments on the distrust of tech were equally explanatory for millennials.
“People tended to be positive about the tech sector, less paper use. But in the last two to three years the big data, big brother angle has really come to the fore [and] people have been more wary and less accepting of companies than they used to be,” he said.
“People are wary of whether they gave true consent, you get 1,000 pages [of terms and conditions]. We all know we don’t read them and even if we did there’s nothing we can do – is it generally informed or not?”
Tinybeans CEO Eddie Geller told Stockhead previously that tech companies had a balancing act between transparency and being authentic to customers.
Another industry where millennials desire authenticity is travel.
Having less time and shallower pockets, millennial travellers want experiences that truly let them live like locals.
Expedia studies have shown that the majority of millennial travellers think experiencing an authentic culture is the most important thing. So forget about bus excursions and guided sightseeing tours.
But they are not total cheapskates. Airbnb & Forbes studies have shown many millennials are prepared to sacrifice several things for travel including buying a house, Netflix subscription, coffee, alcohol, carbs and even sex.
Nevertheless they are bargain hunters – over 80 per cent check multiple booking sites and consider online reviews in their decision making.