Monday, July 26, 2004

Demography Plays

William sterling has been a big-picture guy on Wall Street for 18 years. Ask the man, a self-described "recovering economist," about the case for international investing, and he will bend your ear with a barrage of opinions on everything from America's external accounts to Japanese real estate prices. So how does Sterling, 50, who oversees $5.2 billion as chief investment officer of New York's Trilogy Advisors, zoom in on a list of stocks? Demographics play a key role.

Demographic information comes with a comforting level of certainty, no matter what the market. If you know the number of 15-year-olds alive today, it's not too hard to guess how many 25-year-olds will be around a decade hence. "There's almost nothing else you can say about ten years from now with that amount of confidence," Sterling says.

Since 1998 Sterling has put that certainty to good use in the CI Global Boomernomics Sector fund, an $814 million portfolio he manages for Canada's CI Funds. The fund's mission is to invest in sectors that Sterling believes will be most affected by population trends, especially the aging of the baby boomers, or those born between 1946 and 1964. The fund has returned 6% annualized since its launch, versus 1% for the MSCI World Index.

One way Sterling digs into demography is to identify"longs" and "shorts" via consumption survey data from the U.S. Bureau of Labor Statistics. A sector the numbers favor: medical devices, especially implants and prosthetics. In 2011 the first wave of baby boomers will hit 65, and failing joints will be a big problem for this group.

Other demographic longs are cruise ships, recreational vehicles and low-end real estate. The latter category plays more off the "echo boom," or the children of the baby boomers, now headed into their twenties. An example of a demographic short would be winter sports. "Not good," Sterling chuckles. "Fifty-year-olds might like to think they'll do a lot of skiing, but they'll probably take a cruise instead."

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