Betting on Millennials: Merrill Lynch’s Best Thematic Investment Ideas

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Many in Generation X and baby boomers alike might not want to admit, but millennials (Gen Y) along with Generation Z — or centennials — are the world’s most important demographics. Right now, there are 2 billion millennials worldwide, and they have overtaken the baby boomers as the largest living generation in U.S. history. Considering this theme, what’s the best play that investors can make based on these generations? One key analyst sees a few viable options.

These younger generations are embracing diversity, sustainability, globalization, disruptive technology, “peak stuff,” new business models and entrepreneurialism like no generation before them. Not to mention, they are economically optimistic to boot. Together Gen Y and Gen Z are expected to account for about 60% of the global workforce by 2020.

It’s worth pointing out that technology is the defining characteristic of Gen Y and Z’s daily lives, with 90% smartphone and social network penetration. Young cohorts check their phones around 150 times per day, and 50 billion instant messages and 6 billion emojis are sent every day. It’s also said that human attention spans are falling below those of goldfish.

At the same time, Gen Y and Z are mainstreaming disruptive technologies and both corporations and investors need to step up to the challenge, including via smartphones and apps, social media, instantaneous communication, “snackable content,” omnichannel strategies and making things shareable.

Merrill Lynch pointed out a key concern for these younger generations:

For the first time in history, people aged 65Y+ will outnumber children <5Y before 2020E. Total fertility rates have dropped to near or below replacement rates in all regions except Africa. The downside risk is that both generations may end up poorer than their parents and grandparents, with the demographics having profound long-term effects on the viability of economic growth, housing, pensions, health and long-term care, labor markets, education and public finances.

The brokerage firm went on to estimate the total income of millennials and centennials at $21 trillion in 2015, about 35% of global gross income. The United States, China, India, Japan and Germany are the largest markets. Merrill Lynch forecast that this number could grow to $62 trillion by 2030, $32 trillion for millennials and $30 trillion for Gen Z.

Investors looking to make a play on this theme should focus on the following areas:

  • Technology, media and entertainment
  • Consumer
  • Household formation
  • Education
  • Financials