Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / How Falling Birth Rates Reshape the Investment Landscape
Transcript
- Lucas: So we've spent over a hundred episodes now walking through how falling birth rates hit specific industries — toys, beer, housing, funeral homes, you name it. Luna: And I think a pattern has emerged, right? Fewer kids means the population pyramid inverts, and the economic center of gravity shifts older. Lucas: Exactly. So today I want to zoom out a bit and ask: if you're an investor, how do you actually allocate capital in a world where the under-30 cohort is shrinking and the over-65 cohort is the fastest-growing segment in almost every developed economy? Luna: The obvious answer is healthcare and senior living. But I think the market's already piled into that. Is there something more nuanced? Lucas: There is, and let's get specific. One area I've been watching is home health services — not the giant hospital chains, but the mid-cap companies that provide in-home nursing, physical therapy, and daily living assistance. Think about it: aging in place is the overwhelming preference for seniors. Some 90 percent of people over 65 say they want to stay in their own homes as long as possible. Luna: And that's cheaper than a nursing home, too. Medicaid and Medicare are increasingly steering patients toward home-based care. Lucas: Right. There's a company called Amedisys — market cap around three billion dollars — that reported same-store revenue growth of 12 percent year-over-year in their last quarter. Their admission rates for new patients are climbing even as overall hospital visits normalize post-pandemic. That's a direct demographic tailwind. Luna: Twelve percent organic growth in a mature industry is impressive. But isn't the valuation already reflecting that? Amedisys trades at what, 20 times earnings? Lucas: Closer to 22 times forward earnings, which is a premium to the broader healthcare sector. But here's the thing: the demographic shift isn't a one-year story. The number of Americans 85 and older is projected to nearly double by 2040. That's a 15-year tailwind that most companies don't get. So a premium might be justified. Luna: Okay, but what about the real estate side? Senior housing REITs have been hammered by interest rates. Is that a buying opportunity? Lucas: It depends on the sub-sector. Independent living and assisted living facilities have seen occupancy rates recover to about 85 percent nationally, still below pre covid levels of 88 or 89 percent. But memory care units are actually at or above pre-pandemic occupancy. The demand is there, it's just that high financing costs have slowed new construction. That supply constraint could be a positive for existing operators once rates stabilize. Luna: So you're saying the demographic thesis is intact, but the timing is tricky because of the macro environment. Lucas: Exactly. And that's where I think investors need to get more creative than just buying a healthcare ETF. There are smaller niches — like age-friendly technology. Companies making stair lifts, walk-in bathtubs, and home monitoring systems. It's not glamorous, but it's growing. One private equity backed firm, Lifeway Mobility, has been acquiring regional installers at a rapid clip, consolidating a very fragmented market. Luna: That sounds like a playbook we've seen in other industries — like roll-ups in dental practices or veterinary clinics. But is the unit economics attractive? These are typically high-touch, low-margin businesses. Lucas: Margins are thin, but the recurring revenue from service contracts and replacement parts can be sticky. And the addressable market is huge. The CDC says about one in four adults over 65 falls each year. That's a constant driver of demand for safety modifications. Luna: Let me push back a little. If falling birth rates are a global phenomenon, shouldn't we be looking at emerging markets where the population is still young? India, Nigeria, parts of Southeast Asia? Lucas: That's a fair point, and it's the other side of the demographic coin. But even in those countries, birth rates are falling faster than many realize. India's total fertility rate is now below replacement level at about 1.9. So the window of opportunity for a 'demographic dividend' is closing there too. Luna: So you're saying the entire world is aging, just at different speeds. That means the investment thesis for catering to seniors is a multi-decade theme across all developed markets and eventually emerging ones. Lucas: Exactly. And that brings me to another angle: age-focused ETFs. There are a few like the Global X Longevity Theme ETF, which holds companies from medical devices to fitness for seniors. But the expense ratios are high — around 0.5 percent — and the holdings are often just the usual large-cap healthcare stocks. You're not getting pure-play exposure. Luna: So you'd rather pick individual names in home health, senior housing, and age-tech. But that requires more research and conviction. Lucas: It does. And that's the trade-off. The ETF gives you diversification but dilutes the demographic thesis. If you believe the aging population is the dominant structural trend of the next 20 years, it might be worth digging into the specific companies that are directly exposed. Luna: I want to come back to something you said about home health. Is there a risk that Medicare or Medicaid reimbursement cuts could hurt those companies? It feels like a policy-dependent sector. Lucas: You're right. The home health industry is heavily regulated. In 2023, there was a proposed rule that would have cut Medicare payments by 2.2 percent, but it was eventually scaled back. So policy risk is real. But the demographic pressure is so strong that lawmakers have an incentive to support aging-in-place solutions because they're cheaper than institutional care. The Congressional Budget Office estimates that expanding home health could save Medicare tens of billions over a decade. Luna: So the long-term political trend is supportive, even if there are short-term skirmishes around rates. Lucas: Exactly. And that's the kind of thesis I like — where the structural tailwind is strong enough to overcome cyclical headwinds. Luna: You know, we talk about a lot of these economic shifts on the podcast, and I think our listeners really appreciate the concrete examples. It's one thing to say 'demographics matter' and another to point to a specific company like Amedisys or a sub-sector like stair-lift installers. Lucas: Yeah, and that's actually why I'm glad we can do this show without any corporate sponsors or ads. It lets us really dig into the details without any conflicts of interest. Luna: Totally. And honestly, that model only works because of our listeners. A couple of dollars a month from people who find value in the show genuinely makes a difference. It keeps us independent. Lucas: If you've been listening for a while and feel like you've gotten something out of the episodes, you can support us at buy me a coffee dot com slash fexingo. That's it — small contributions, no pressure, but it adds up. Luna: And it keeps the conversation going without any outside influence. So, back to the investing side — what about the risk of a recession? If the economy slows, seniors might delay elective home modifications or move into assisted living later. Lucas: That's a real near-term risk. In a recession, demand for discretionary senior services could dip. But the demographic wave is relentless. The baby boomers are aging, and they have more wealth on average than previous generations. Many of them have pensions, home equity, and savings. So the spending power is there, even if timing shifts slightly. Luna: So the key takeaway for investors is: look beyond the obvious healthcare stocks, consider the niche players in home health and age-tech, but be aware of policy and recession risks. And maybe don't just buy a broad ETF. Lucas: Right. And think globally. Japan is about 20 years ahead of the US in terms of aging. The Japanese have already seen a boom in robotics for elder care, for instance. Companies like Cyberdyne make exoskeletons that help nurses lift patients. That's a market that's going to grow globally. Luna: So we can learn from Japan's experience. It's not just about investing in US companies; it's about understanding the playbook that's already unfolding elsewhere. Lucas: Exactly. And that's what we'll keep exploring on this show. Thanks for listening, and we'll see you next time.