A significant demographic trend in the United States that can be applied to stock market investing is the aging of the Baby Boomers, which includes those born between 1946 to 1964. A demographic profile report by MetLife (MET) on this group estimates spending power in excess of $2 trillion, representing 26% of the American population. Looking ahead to the year 2030, the report projects that Baby Boomers will comprise about 20% of the population and be in an age range of 66 to 84 years old.
Based on the huge spending power of Baby Boomers, I have developed an idea for an exchange-traded fund (ETF) of stocks most likely to benefit from this demographic trend. Due to the aging of this demographic and a focus on health and well-being, my fund maintains an overweight in the healthcare sector. I chose leading companies from the following healthcare industries: drug manufacturers (both brand and generic varieties), medical instruments (i.e. joint replacements), drug retailers, cosmetic medicine, and biotechnology. Top companies from industries outside of healthcare include financial asset management, gambling, cruise lines, telecom services, internet portals, and internet retailers.
Over the last 52 weeks, my Baby Boomer ETF produced returns of about 10%, compared to a loss of about 7% for the broad markets, as measured by the S&P 500 ETF (SPY). The top three stocks by 52-week return in my fund include Amazon (up 115%) (AMZN), Gilead Sciences (up 41%) (GILD), and Baxter International (up 29%) (BAX). The Baby Boomer ETF is comprised of US-based companies and is dominated by large-cap and mega-cap companies, with an average market cap of just under $70 billion for the 22 active stocks chosen for fund inclusion from among 30 eligible companies.
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