Millennials: An Investor’s Perspective

by

Monique Frederick, CFA, FRM

Millennials, the generation that some have labeled as impatient and entitled, have become the popular subject of study in boardrooms and among marketing managers everywhere. Sometimes referred to as Gen Y, those born between a loosely defined date range of 1977/1980 and 1995/2000, are about to enter their peak earning years and are expected to become apotent economic force. They have grown up in a digital world of smartphones and constant interconnectedness, and have been directly impacted by the recent economic recession. These experiences will have undoubtedly shaped their expectations and behavioural preferences.

Recognising that Millennialsare far from homogenous, it is still possible to draw some broad-based conclusions about the behaviours and attitudes that make this generation decidedly different from the one thatpreceded it. Several studies and surveys have been undertaken to better understand theirdistinct characters.

At 92 million members strong,the Millenial generation represents the largest cohort in US History, according to the US Census Bureau. Notwithstanding its considerable size, members of this group have less disposable income. They find themselves in this predicament as a consequence of substantial student loan debt, underemployment and alower level of wages in general. Itis not surprising, then, to learn that the vast majority of people in this generation are still living in their parents’ basements and do not have an appetite for home ownership.

Despite the dire outlook for greater economic growth contributions from this group of young 20 to 30 year olds who are entering their peak earning years, they certainly have and will influence general spending behaviours of the older generations. Despitelower income levels,Millennialshoppers still spend $600 billion each year in the United States, according to market research conducted by Accenture. The company further estimates thisfigure will soar to $ 1.4 trillion by 2020, representing 30% of total retail sales. Undoubtedly this generation makes a significant contribution to the economy; however their spending patterns may differ markedly from the Baby Boomer generation.

Millennials place great importance on the shopping experience and rely heavily on the opinions of others, especially their peers. Prior to purchasing an item they will do extensive online research and read customer reviews and blogs. Convenience and speed are also of utmost importance and, apparently, they are even willing to pay more for this benefit. Amazon has been able to tap into this need by further expanding its already fast two-day delivery service available to prime service subscribers by offering one-hour delivery service in New York City.

Another behaviour which has been revealed through research is Millennials’ attitude toward ownership. Millennials are less enamoured by ownership and the inherent burden associated with it. Consequently they are the epitome of the shared economy concept, embracing the services provided by online car hire company Uber.This also explains the attraction to online streaming companies like Netflix and Spotify.Likewise, this generation prefers renting versus home ownership, although this may be a function of an inability to afford housing.

The attainment of physical and mental wellness is another goal that ranks high on the priority list for Gen Y. They place greater emphasis on exercising and healthy eating habits. Companies like Chipotle, which offers organic and healthy food choices paired with convenience, are big wins for this generation. Likewise, Starbucks which has expanded its menu to include more sandwiches and salads and have increased the number of drive-through locations,is a favourite among Millennials according to a Goldman Sachs report.

As investor appetite for investment vehicles built on these changing trends increase so will the response from asset managers. Companies like Morgan Stanley have already published research on companies that stand to benefit from the emergence of Millennials. Bank of America went even one step further creating funds which invest in companies who have managed to cater specifically to the needs of Gen Y and stand to benefit from it.

While adapting to demographic shifts is a key ingredient in determining a company’s success, it is most definitely not the only one. The macro economic environment, management’s expertise, risk management strategies and value proposition are all factors that affect a firm’s profitability. As such, to limit stock specific risk, all investment decisions should be made in the context of a diversified portfolio aligned to achieve your personal investment objectives.

Disclaimer: The views expressed are the opinions of the writer and, whilst believed reliable, may differ from the views of Butterfield Bank (Cayman) Limited. The Bank accepts no liability for errors or actions taken on the basis of this information.