ETFs have become a staple in investment portfolios. Their recent evolution into thematic investment vehicles has created opportunities for low-cost, diversified investment in trend-based theses across many sectors. Against a backdrop of rising demand for longevity innovation including products and services for the growing number of seniors worldwide, this article poses the question of whether longevity ETFs offer a compelling investment for aging and longevity enthusiasts.
Key highlight: aging and Longevity has not reached a sufficient maturity on public capital markets to support ETF-based strategies.
Defining ETFs and Thematic ETFs
Exchange-traded funds (ETFs) have become popular over the past 20 years. Over the last five years, their 19% annual growth in assets under management (AUM) outpaced broader market growth by more than three-fold. They have become the go-to tool for cost-effective diversification since their first listing in 1994, representing 13% of the US equity market as of Q1 2024.
Whilst market-based and sectoral-based indexes and ETFs are becoming firmly rooted in investment portfolios, recent innovation efforts have centered around applying the ETF structure to more actively-selected indexes, most notably thematic ETFs. Particular thematic ETFs have skyrocketed in popularity among retail investors, as shown in the chart below with the ten largest thematic ETFs ranked by assets under management. Of this sample, some might spot Cathie Wood’s ARK innovation fund from the US, which invests in a long list of disruptive innovations in markets such as genomic revolution, and energy companies. The Ark Innovation Fund has received significant media attention in recent years.
As shown in the graph below, the highest-returning ETF, the FANG+ ETF, has benefited from the AI-fueled market upswing, as it targeted highly-traded growth stocks of technology and tech-enabled companies (Facebook, Apple, Amazon, Netflix, and Alphabet's Google).
The ten largest thematic ETFs ranked by assets under management:
Three Longevity ETFs
Recent advancements in longevity innovation, (i.e., life-extending innovations) and the "Longevity Economy" solutions have drawn significant investor interest. "Longevity innovation" refers to the development and delivery of technologies, such as new medications, aimed at extending the human lifespan. The commercial thesis underpinning the longevity innovation sector is the belief that the addressable market for it will expand significantly in the coming years, as solutions become more accessible globally.
On the other hand, defined by the AARP as the "Longevity Economy", this sector involves the creation of novel products, services, and technologies tailored to the growing demographics of older adults. The latter sector capitalizes on the increased supply and demand for products and services that cater to seniors.
Table 1: List of Longevity ETFs by Ticker, AUM, Volume, Year of Launch, Location Traded and Name of Trustee
Now we’re going to delve into each ETF individually.
a. AGED
AGED is reflecting Blackrock’s dominance in the global distribution of ETFs. The criteria for companies to be included in this ETF is that they are ‘*generating significant revenues from the growing needs of the world’s aging population’.* The fund is invested in 355 companies, whereas as indicated in the left column of the graph below, 43.6% of AGED's investments are in the financial sector, while as much as 45.9 % are allocated to the healthcare sector.
The largest investments are in:
- Robinhood (1%) which offers incentives for retirement contributions
- Tenet Healthcare (0.8%), a multinational healthcare services company
- Jackson Financial (0.8%) which delivers financial products designed for retirees.
Robinhood is targeting the financial tech landscape, facilitating modern and accessible retirement planning for a digitally savvy aging population. Tenet Healthcare represents the ETF's commitment to investing in healthcare, which is crucial for improving the life quality of seniors, given their specialized medical needs. Jackson Financial is focused on financial products for retirees, ensuring their financial security.
By investing in these companies, the AGED ETF strategically addresses various essential needs of the aging population, enhancing their quality of life and financial well-being.
b. AGNG
Used to be under the ticker LNGR, AGNG by Mirae Assets, targets companies ‘positioned to serve the world’s growing senior population through exposure to health care, pharmaceuticals, senior living facilities and other sectors that contribute to increasing lifespans and extending quality of life in advanced age’. The fund is invested in only 88 companies, which is smaller relative to AGED and HLGE and makes the returns slightly more risky.
The three largest allocations are to:
- Amgen (3.3%) and AstraZeneca (3.3%), are biotechnology and biopharmaceutical companies, respectively.
- Welltower (3.3%), a healthcare infrastructure investor.
Amgen and AstraZeneca are at the forefront of biotech and biopharmaceutical innovation, focusing on developing treatments that not only extend life but also improve the quality of those additional years. Welltower, on the other hand, invests in healthcare infrastructure, including senior living facilities, which are essential for supporting the health and wellness of the elderly.
c. HLGE
HLGE is distributed by the lesser-known Hartford funds. It targets companies that makeup industries that ‘are expected to benefit from the growth of the aging population and the substantial buying power it represents’. The graph below shows us that this fund is the most diversified among the three ETFs, allocating only 20.3% in healthcare, and not more than 32.5% in financials.
This makes HLGE particularly intriguing because it invests in 'indirect' sectors such as IT, consumer products, real estate, and communication services. These investments offer a broad perspective on the effects of demographic changes across multiple sectors, without being limited to healthcare or financial sectors alone.
HLGE is invested in 335 companies; the largest investments are in:
- Qualcomm (1.2%) and Nvidia (1.1%), which design and manufacture computer chips used across the entire healthcare industry.
- Alphabet (1.2%), which has a subsidiary, Calico Life Sciences, focused on longevity.
Each of these companies contributes strategically to the sectors that benefit from the aging population. Qualcomm and Nvidia are integral in the technological advancement of healthcare. Their high-performance computer chips are essential for developing new medical technologies and devices that enhance the capabilities of healthcare providers and improve patient care, directly linking to longevity innovations. Alphabet, through its subsidiary Calico Life Sciences, explicitly focuses on longevity and anti-aging research, aiming to understand and potentially extend the human lifespan.
Graph 1: Breakdown of Longevity ETFs by Sectors (%)
Have longevity ETFs provided great returns?
Longevity ETFs have underperformed the S&P500 by 7 - 12% p.a. over the last three years, in part due to the extraordinary AI-fuelled bull run since October 2023. Nevertheless, a comparison to the Russell 2000 offers a more optimistic perspective, removing the S&P500’s concentrated AI gains to better contextualize the ETF performance against the historically quick US rate tightening cycle occurring over the same period.
Graph 2: Longevity ETF Returns compared to S&P 500 and Russell 2000 from 04/2021 to 04/2024,
Why have longevity ETFs underperformed?
It is feasible that longevity trends, namely rising demand for and access to health-span-extending innovation and aging populations, have not sufficiently accelerated to impact company value drivers across the portfolio.
However, analysis of underlying holding companies and their value drivers point to an alternative conclusion - that the portfolio returns are not sufficiently correlated to the development of the longevity economy and an aging population. The mechanism through which these trends support value creation appears obscure for many holdings of ETF.
So, what's next?
Longevity will continue to emerge as a theme. However, it is unclear which type of investment strategy will generate the highest returns for longevity-focused investors. Alternatives longevity ETFs exist, such as venture capital or more restrictive stock selection.
Though longevity ETFs capture the traditional benefits of low-cost diversification, their weak relationship to longevity and recent underperformance does not support an attractive proposition for investors at present.
However, this is unlikely to continue as longevity capital markets develop.
Disclaimer: The content of this edition is not investment advice and does not constitute any offer or solicitation to offer or recommendation of any investment product. It is for general purposes only and does not take into account your individual needs, investment objectives and specific financial circumstances.