Market Outlook Notes from the Kitchen

The Kids Are Alright

  • Sep 23, 2021
  • Craig Farley

(Cover Image Source: Duy Pham)

The Who - The Kids Are Alright

‘The Kids are alright’ was written by Pete Townshend of English rock band, The Who in the early 1960s when he felt nothing more than a kid himself, practicing with life or ‘adulting’ as the Millennials do. It later became the title of a rockumentary about the band and featured one of their most famous hits ‘My Generation’. We are certainly seeing some generational shifts in behaviour which are starting to have some influence on the investment landscape, in particular the upcoming Generation Z.

The Demographics Megatrend

Demographics are one of our Global Megatrends which we see as secular, structural forces that will influence the present and more importantly, will shape tomorrow’s global economic landscape bringing with it plenty of investment opportunities.

Long-term population demographics is one of these and in the coming years will significantly influence investment returns because of the sustained shift in the behaviour of different generations. Starting with The Who’s generation, the aging ‘Baby Boomers’. These are people born between 1946 and 1964. In the UK, this generation accounts for approximately 14 million, or 21%, of the population.

In the US, over 80 million “baby boomers” are set to retire over the next 20 years. That’s equivalent to 40,000 retirees per month.

The economic baton is increasingly being picked up by the next generations, Generation X (born 1965 to 1980) are the generation approaching the middle of their working careers and the first generation on track to be worse off in terms of being prepared for retirement than their parents. The Millennials (1981 to 1996) or digital natives are the first global generation that grew up in the internet age and found it harder to achieve financial independence from their parents.

More recently, we have witnessed the emergence of “the kids”, Generation Z, those people born after 1996 and now starting to become adults. Currently these “kids” are circa 4% of the global workforce.

And we are starting to see that the kids really are alright as they become economically of age.

Generation Z

A report by Oxford Economics shows how members of Generation Z are poised to play a major role in the economy and in shaping labour markets over the coming decade across six developed countries: Australia, France, Germany, the Netherlands, the UK, and the US.

By 2030, it is estimated that Gen Z will comprise around 22% of the global workforce. In 2040, this number is expected to rise to over 40%. The knock-on effect being that their income from employment will balloon from $440 billion to more than $3.5 trillion and total consumer spending may reach $3.0 trillion, equivalent to 11% of total household spending across the six economies.

According to Bank of America, direct purchasing power of this generation is set to grow 400% over the next decade to an astonishing $33 trillion, or more than a quarter of global purchasing power by 2030.

"The Gen Z revolution is starting, as the first generation born into an online world is now entering the workforce and compelling other generations to adapt to them, not vice versa."

Part of this revolution has also been driven by the ongoing covid pandemic and related global recession accelerating our world towards a more digital economy.

Oxford Economics have developed a digital competence index measure. Pooling responses across the survey, Gen Z’s average competence score was 2.5% higher than Millennials and over 8% higher than Gen X. Beyond digital aptitude, the research highlighted three Gen Z traits that is likely to serve them well in the future workplace:

  • Agility: the ability to absorb information and react to new challenges as they occur
  • Creativity: knowing how to create and design various types of digital content
  • Curiosity: being more likely to engage in various forms of informal learning

Shifting Preferences

From what we are seeing as investors, we think it prudent to understand and invest in companies producing products and services that these new emerging consumers will spend their growing income on. By investing in those products and services we can unlock financial gains over the next 10 years and more. So, what products and services are Gen Z consuming? We’ve made some interesting observations:

  • They dislike broadcast TV and love streaming platforms (only 1 in 4 Gen Z consumers watches broadcast TV).
  • They care deeply about the environment. According to a Forbes survey, 79% responded that companies behaving more sustainably has become even more important to them since the Covid-19 outbreak, and there was a strong desire to “build back better” after 2020.
  • About 75% of Gen Z prefer to shop online.
  • They rarely use cash, and around 80% of them use a mobile digital payment platform.
  • They like to watch esports more than the NBA, NFL, and MLB.
  • They love to travel, but they don't drive much (thanks, Uber). And 40% of them prefer to interact virtually.

Perhaps the most important Gen-Z aspect is they love Bitcoin. Nearly 50% of Gen Z investors are invested in cryptocurrencies. About half of all young millionaires have at least 25% of their wealth tied up in cryptos.

See our recent article An Introduction into the World of Crypto

How TEAM is taking advantage

The TEAM International Equity Fund is well positioned to capture this long term and growing opportunity via several core investments.

  1. Amazon. There's no doubt that many Gen Z shoppers rely on Amazon for their shopping needs, and this seems likely to continue for the foreseeable future.
  2. Nvidia chips power many of the modern devices that Generation Z love, from online gaming to electric cars and GPS systems. As gaming systems, self-driving cars and other high-tech products continually require faster and more powerful chips, Nvidia is well-positioned to benefit from the tech revolution that Generation Z is helping to power.
  3. Depop, the global fashion online marketplace recently acquired by Etsy, is a Gen Z favourite.
  4. Shopify, the e-commerce platform, is cross-generational. Shopify recently partnered with another Gen Z favourite, Tik Tok. According to Forbes, the majority (97%) of Gen Z consumers say they now use social media as their top source of shopping inspiration.
  5. PayPal is the most trusted digital payment platform for 18-to-39-year olds, according to a recent survey.
  6. Apple. Generation Z loves Apple. Piper Sandler’s latest teen survey estimated that 88% of teens in the U.S. owned an iPhone, with more wanting one.
  7. Walt Disney. On average, 44% of Gen Zers said they have used Disney+ at least once a week since early March, as did 42% of millennials. Morning Consult Brand Intelligence data confirms that Disney+ has found its audience, namely Generation Z adults and millennials. Frequency of Disney+ use in terms of hours spent and engagement is higher among members of Gen Z and millennials, and has remained consistent, throughout the COVID-19 pandemic.
  8. Sony. According to Deloitte’s 2021 Digital Media Trends survey, about 26% of Gen Z said video games are their top entertainment activity, and 87% of those in the age bracket said they play video games daily or weekly. That’s followed by listening to music (14%), browsing the internet (12%) and engaging on social media (11%).
  9. Microsoft. Gen Z prefer the Xbox to Sony PlayStation. The preference is probably because millennials would have grown up with a Sony-branded console rather than an Xbox. On the other hand, Generation Z would have been more likely to get their first gaming console when the Xbox 360 launched in 2005, especially as it was largely more popular than the PlayStation 3 when the two launched, due to Sony's hefty asking price.

TEAM Asset Management is a trading name of Theta Enhanced Asset Management Limited which is regulated by the Jersey Financial Services Commission.