Baby boomers have dominated North American culture and the economy for decades. But in recent years, companies and investors have turned their attention to the massive millennial market, as the boomers move past their peak spending years.
Still, boomers have amassed more wealth and are set to spend more of it as the pandemic eases, they retire and move into the decumulation stage of life.
We asked three portfolio managers for Canadian ETFs picks that could benefit from boomers looking to spend and meet their investment goals in the months ahead:
Mary Hagerman, portfolio manager and investment adviser, Raymond James Ltd.
Ms. Hagerman believes baby boomers with investment portfolios are focused on making their money grow, without taking on too much risk.
“Retired boomers want to stretch out their savings and live off them at the same time,” she says.
For investors looking to play this trend, Ms. Hagerman suggests focusing on products that generate dividend income. Her pick in this area is the BMO Equal Weight Banks Index ETF (ZEB-T). It has a management expense ratio (MER) of 0.60 per cent and has returned about 55 per cent over the past year. (All data from Morningstar as of Aug. 5.)
The banks are well-positioned to benefit from boomers, as they manage their savings, investments and loans. Ms. Hagerman notes the underlying equities have a history of steady dividend growth.
Ms. Hagerman also believes boomers will be looking at real estate investment trusts (REITs) for income generation and capital growth. She likes another BMO product here: the bank’s Equal Weight REITs Index ETF (ZRE-T). This fund’s MER is 0.61 per cent and returned about 38 per cent over the past year.
Ms. Hagerman also believes boomers are becoming more interested in environmental, social and governance (ESG) issues and looking for more investment products in this area. There are a growing number on the market, but she points to the iShares ESG Balanced ETF Portfolio (GBAL-T) as one example that could be popular. The fund, which buys several broad-based ETFs that are screened for ESG risks, has an MER of 0.24 per cent and has returned about 15 per cent since its inception in September last year.
Nick Piquard, vice-president and portfolio manager, Horizons ETFs Management (Canada) Inc.
Mr. Piquard says boomers who are either retired or close to it “are all looking for the same thing: income.” Unfortunately, he says they’re retiring at a time when interest rates are at historic lows, which makes it challenging to find sustainable income.
Bearing that in mind, Mr. Piquard has three ETF picks he believes are well-suited to boomer investors – and will benefit from their anticipated spending habits in the months ahead.
The first is the Horizons Enhanced Income U.S. Equity ETF (HEA-T). The fund allows investors to maintain exposure to U.S. equity markets while still collecting income from their investments. HEA pays a monthly distribution bolstered by a ‘covered call’ strategy; that is, selling the option to buy a specific security while owning that same underlying investment. The fund has an MER of 0.84 per cent, and a one-year return of 40 per cent. Its top holdings include companies that stand to benefit from boomers’ spending in the months ahead, including shopping-mall operator Simon Property Group Inc. and money manager the Goldman Sachs Group Inc.
Mr. Piquard’s second pick is the Horizons Active Preferred Share ETF (HPR-T), with an MER of 0.64 per cent and a one-year return of 37 per cent. Mr. Piquard notes preferred shares offer certain advantages including paying dividends instead of income, which are taxed at a lower rate. Half of its holdings are in the financial sector, an area that will continue to benefit from the boomer generation through banking, insurance and investment management.
John Hood, president and portfolio manager, J.C. Hood Investment Counsel
Mr. Hood isn’t a big fan of niche ETFs, arguing they are often “similar and expensive to the broad index or sector.” Still, he offered up two funds he expects will benefit from boomer spending.
The first is the Harvest Travel and Leisure Index ETF (TRVL-T), with a management fee of 0.40 per cent. It has been volatile since it launched in January and is down about 2 per cent. Its top holdings include casino, hotel and cruise companies, which largely cater to the boomer demographic.
Mr. Hood also points to the BMO Global Discretionary Index ETF (DISC-T). It has an MER of 0.40 and returned 36 per cent over the past year. More than a quarter of this fund is comprised of retailers such as Amazon.com Inc., Home Depot Inc. and Walmart Inc., that are expected to see spending growth across age groups, including boomers.