Download Global Population Trends: An immutable force

G L O B A L P O P U L AT I O N T R E N D S :
An immutable force.
Table o f c ontents
In this white paper:
Introduction 1
•Population Pyramids
2
•A Closer Look at Key Countries
4
•Global Population Growth
7
•Labor Force and Economies
8
•The Aging Global Population
10
•Labor Force and Markets
12
•Population and GDP: A Novel Approach
13
•The Outlook for the United States 15
•Some Cautionary Notes
15
•Summary of Investment Implications 15
Written by:
Reviewed by:
Luis E. Torres Director, Asset Management
Douglas W. Evans, CFA, CIMA Senior Managing
Director, Asset
Management
Stephen A. Bobo
Managing Director, Asset Management
Thomas J. Raymond, Jr.,
CFA
Vice President, Asset Management
Jerome J. Paolini
Regional Chief
Investment Officer,
Asset Management
Global Global
population
trends: An
immutable
force forcei
population
trends:
An immutable
G L O B A L P O P U L AT I O N T R E N D S : A n i m m u t a b l e f o r c e
Each year, Abbot Downing identifies broad secular themes to augment its investment
decisions. Demographics play a major role in identifying these themes by providing insights
into the potential demand for a wide-ranging group of goods, services and even investment
choices. Population size and structural distribution directly impact the growth of the global
emerging middle class covered in the firm’s Wealth of Nations theme and filters through to our
focus on Natural Resources and Energy as well.
In evaluating prospects for economic growth, practitioners often turn to a variety of
indicators, such as employment, construction spending, inflation, durable goods, interest rates,
inventories, currency exchange rates and a plethora of other data points. While many of these
can be volatile and difficult to predict, demographics stand out as the one indicator that is
relatively simple to forecast, especially for the long term. Major trends play out over decades
and tend to be rather stable. In this paper, we will examine broad demographic trends that
affect both U.S. and global economies, introduce a novel approach for relating these trends
to future Gross National Product growth, and conclude with a summary of the investment
implications presented throughout the paper.
1
Global population trends: An immutable force
Population Pyramids
Demographers consider a broad array of statistical data that describe the composition of a population to
include age groups, gender, birth rate, migration and life expectancy. A population pyramid (a graphical
illustration such as displayed in Figure 1) can provide an overview of the age characteristics of a group.
Figure 1
Figure 1, for example, shows
the age distribution for the
United States in 1980. A cursory
inspection reveals a fairly young
population with a concentration
in the 15-34 age groups and
clearly identifies the “baby boom”
generation born between 1946
and 1965. If one assumes a roughly
50/50 split between male and
female births over time, the graph
also confirms that women tend to
outlive men.
Source: U.S. Census Bureau, International Programs, International Data Base
Figure 2
To assess the economic impact
of these age-related statistics,
it is useful to begin by broadly
characterizing segments of the
population in terms of their input
to the general economy. For
example, people up to 15 years of
age and over 65 are typically in
school or retired and not part of
the workforce. The 45-54 subset
is positioned in the maximum
earnings years when assets are
being accumulated (Figure 2).
From an investment perspective,
preferences change with age; the
focus is on growth in early years
before a transition to income
generation later on.
Source: U.S. Census Bureau, Income Poverty and Health
Insurance Coverage in the United States: 2009
Global population trends: An immutable force
2
Figure 3
Figure 3 depicts the current U.S.
population pyramid. Compared
to the 1980 pyramid, “baby
boomers” have aged 34 years
and are reaching retirement. The
2014 pyramid also reveals another
major group, labeled “echo
boomers.” These are the children
of “boomers” now reaching 20-35
years of age.
Source: U.S. Census Bureau, International Programs, International Data Base
Figure 4
3
Global population trends: An immutable force
The graph in Figure 4 also makes
clear that the nation’s labor
force is beginning to change.
According to United Nations
data, the percentage of working
age Americans peaked around
2005 and will decline rather
dramatically for the next 20 years
before beginning to level out after
2030.
A Closer Look at Key Countries
Obviously, each country has its own unique population profile.
Figure 5
Japan, for example, has one of the
oldest age distributions in the world
(Figure 5). This looks similar to the
U.S. pyramid, only aged 10-15 years.
At the same time, Japan’s population
growth has been slowing since
the mid-1970s and is likely to turn
negative in 2014. Coincidentally, that
country’s 10-year compound Gross
Domestic Product (GDP) growth
rate peaked in 1978 and has fallen in
line with its population.
Source: U.S. Census Bureau, International Programs, International Data Base
Figure 6
Figure 6 shows the growth
relationship between Japan’s
GDP and labor force. An aging
population is not categorically
bad, although a higher proportion
of retirees eventually has negative
implications because it lowers
productivity. Japan’s average
age of 44 is irrelevant by itself.
However, when compared to
other countries, it looks like an
aging dinosaur. Age may just be a
number, but in Japan’s case, it is at
the far end of the pendulum.
Global population trends: An immutable force
4
Figure 7 gure 8 Figure 7
India, on the other hand, is the
poster child for a young and
expanding population; the largest
number of its citizens is under 15
years old (Figure 7).
Source: U.S. Census Bureau, International Programs, International Data Base
Figure 8
This is in sharp contrast to the
profile of China, another population
giant. The effects of its “one
child” policy mandated in 1979
are revealed in the irregular age
distribution pattern in Figure 8.
Source: U.S. Census Bureau, International Programs, International Data Base
5
Global population trends: An immutable force
The consequences of this Chinese policy are likely to be far more momentous than imagined when
first implemented. Figure 9 shows the 2050 population pyramids for China, Japan, India, and the
U.S. By that year, the bulge in China’s population age will have increased to over age 60. In many
respects, that country’s population distribution will begin to look more like Japan’s, but the total
population will be 12 times larger. Graphically, the U.S. will resemble India, although only 20 percent
of the latter’s population will be older than 60 years of age. China, on the other hand, will have
more than one-third of its population over 60, a total roughly equal to the entire U.S. population.
The Chinese will indeed be faced with a formidable task to house, clothe and feed its multitudes.
Figure 9
Source: U.S. Census Bureau, International Programs, International Data Base
Global population trends: An immutable force
6
Global Population Growth
Looking at the broader picture, global population will likely reach nine billion by 2050, notwithstanding a lower
rate of growth. The majority of the gains will come from the developing world.
Figure 10
Elsewhere, a declining
projected population growth
rate (Figure 10) is due to a
reduction in the global birth
rate. The world population
grew by 1.8 percent annually
from 1950 to 1990, about
1.4 times faster than the 1.3
percent experienced between
1991 and 2012. This slowdown
in recent years is likely to
persist as the projected growth
rate drops even further to 0.8
percent. The main cause for
this decline: birth rates in many
countries have fallen below the
current replacement rate of 2.1
children per woman.
There are a number of
reasons for shrinking birth
rates. Innovations in farming
technologies have abridged the
need for more children to meet
labor demands. The expanding
education of women, advances
in birth control methods and
the sheer expense of raising
children have also contributed
to lower birth rates.
7
Global population trends: An immutable force
Labor Force and Economies
Figure 11
In the U.S., the growth of the
labor force and GDP seem to
be tied together historically
(Figure 11). (As defined by the
Bureau of Labor Statistics, the
labor force consists of “persons
16 years or older in the civilian
non-institutional population,”
whether employed or not.) This
relationship, however, does not
seem to apply in all countries.
Figure 12
While holding true in the U.S. and
Japan, it is a different story with
China and India where neither
total population nor labor force
growth seems to coincide with
GDP (Figures 12 at left and 13 on
next page).
Global population trends: An immutable force
8
Figure 13
Productivity essentially explains
the difference in the labor force/
GDP equation between emerging
and developed countries. By
embracing new technologies and
integrating into world markets,
China and India have been able
to leapfrog ahead of developed
countries in this critical economic
indicator. Figure 14 shows clearly
that the trend in growth of output
per worker in China and India has
far surpassed that in the U.S. and
Japan since 1990.
Figure 14
9
Global population trends: An immutable force
Increasing national productivity
has the profound effect of
increasing real income. Obviously,
this is easier to achieve when
starting from a lower base, but
productivity expansion is not a
given in these cases. A growing
population and labor force is not
enough. Success also depends on
economic, market and political
systems that can facilitate growth.
Finally, the data can be misleading.
A market-driven export-oriented
economy may look numerically
similar to a commodity-driven
economy but have a dramatically
different profile in terms of
poverty, unemployment and
household consumption patterns.
The Aging Global Population
As population growth slows, a populace ages. In 2014, the average global citizen is 31 years old, projected to
increase by nearly seven years to 38 in 2050. For the first time, there will soon be more people on this planet over
the age of 65 than under the age of five.
Figure 15
Figure 15 compares the distribution
of the global population in 2010
and 2050. An aging population has
several implications that can tilt the
economic scales of a country in a
less desirable way:
• Most people become more
conservative as they age. There is
an increasing tendency to shy
away from investment risk and
career risk. A premium is placed
on the predictability of investment
returns and on the certainty of a
paycheck. Becoming more
risk-sensitive over time is
accepted as a sensible and
prudent choice. However, there
is a trade-off if this occurs for
large segments of a population.
On the one hand, wholesale aging
can conceptually erode
productive capacity. Aggregate
capital is deployed more
judiciously by increasingly
risk-averse investors who lack
the advantages of youth,
notably the time to recover
successfully from failure. On the
other hand, the ability to
take risks is higher at a young
age, along with opportunities
to enhance a country’s economic
potential.
Global population trends: An immutable force
10
• An aging population also poses a deflationary
threat. Broad consumption patterns can moderate
if a significant number of people migrate from
higher income-producing jobs to minimal income
resources during retirement. This ultimately leads to
reduced demand for big ticket discretionary items
such as homes and automobiles. In fact, there is a
high degree of predictability to consumer patterns
as asserted by economist and author Harry S. Dent, Jr.
in his recent book, The Demographic Cliff: “People
do predictable things as they age. The average family
borrows the most when the parents are age 41,
typically the time of their largest home purchase.
They spend the most at age 46. People save the
most at 54 and have the highest net worth at 64.”
• Lower income also reduces tax revenues while social
expenditures rise to support retirees. To address
this paradox, governments are incented to engage in
deficit-spending or printing money, to encourage
economic growth.
• Retirees are inclined to consume their savings as
they age. Nest eggs are gradually liquidated to
offset the absence of employment income. As
savings accumulated for retirement are repurposed,
downward pressure on asset prices can follow
without the arrival of new marginal buyers.
Globalization, however, can provide a helping hand.
Capital is increasingly portable and foreign investors
may be able to mitigate any financial supply-demand
imbalances in the U.S. and elsewhere. Yet, additional
deflationary risk must be recognized as it could well
impact the valuation of assets and put a damper on
long-term investment returns.
• Aging can also greatly alter expenditure patterns
at the government level. People now live longer
due to advancements in biotechnology, nutrition
and medicine. Longer life, however, comes
along with a corresponding downside in the
form of increasing reliance on government safety
nets. Entitlements, particularly Social Security and
Medicare in the U.S., take center stage. In 2011, these
programs, along with Medicaid, accounted for 44
percent of the federal government’s $3.7 trillion in
expenditures, up from 34 percent in 1990, according
to the Bureau of Economic Analysis. In 2010, the year
11 Global population trends: An immutable force
before the first baby boomers reached retirement age,
there were 40 million people age 65 and older in the
U.S.; by 2020, that number will be 55 million. Ballooning
entitlements precipitated by an aging population
will reroute government spending away from growthenhancing areas such as education, research and
development, and infrastructure into entitlements,
probably curtailing economic potential. Tax increases
or a reduction in benefits theoretically provide at
least a partial offset to these government funding
obligations, but both are politically toxic and unlikely
to garner any serious attention from the political
establishment.
• The most likely financial tool to fund entitlements is
debt issuance, but the resultant leverage is a
double-edged sword. Debt is already a monumental
problem in many countries with aging populations. As
noted earlier, Japan is home to the oldest population
in the world. Its average age of 44 is anticipated to
reach 53 by 2050 and government debt is already
three times that of GDP. The U.S. is not in a much
better place, claiming the number one position among
global creditors. Its average age of 38 will rise to 41
by 2050. Should debt supply begin to dwarf demand,
pricing will come under pressure and yields will spike.
By process of elimination, debt on top of debt may
be the only viable answer to fund entitlements and it
would likely come at a time of higher interest
rates and economic fragility. In that environment,
bond owners beware.
Increasing population growth helps limit the
consequences associated with an aging population.
Simply put, more people equals more economic
potential. Yet, at the same time, declining birth rates
have advantages as well. A shrinking global population
pie would be less taxing on the environment and finite
global resources … but that is a topic for a future
Abbot Downing white paper.
Labor Force and Markets
Equity market valuations may also be related to demographics.
Figure 16
Figure 16 shows the S&P 500 price/
earnings ratio plotted against the
ratio of maximum earners to retirees.
We can easily observe the apparent
correlation between the portion of
the population in their maximum
earnings years and the valuation
multiple afforded the S&P 500.
Maximum earners are more likely
than retirees to accumulate assets
and invest in growth instruments
like equities. The elderly, on the
other hand, are expected to favor
income-producing investments. As
the proportions allocated to the
two alternatives have changed over
time, stock valuations have been
impacted. As shown in Figure 16,
the trend of this demographic factor
portends declining valuations for
equities for decades to come.
Figure 17
Bond yields show a similar
connection. Figure 17 shows the
relationship of the 10-year U.S.
Treasury yield to labor force
growth in the U.S. The rate of
growth increased dramatically
between 1948 and the late-1970s
as labor force participants swelled
from 60 million to 100 million.
During the same period, the
interest rate on the 10-year U.S.
Treasury rose from below 3 percent
to a peak of over 15 percent in 1981.
Since 1980, the labor force has
continued to grow, reaching 150
million in 2006 and 155 million
today. However, the growth rate
has decelerated from over 10
percent to less than 2 percent over
that time span. Coincidentally,
bond yields have dropped from
their peak to today’s historic lows.
Global population trends: An immutable force
12
Population and GDP:
A Novel Approach
The framework for thinking about demographics
and how it can impact a country’s economic growth
is contained in this white paper. There are a host of
potential inputs and nuances to consider. However, as
suggested earlier, demographics can provide insight
into a population’s behavior, but economic, market
and political systems have a greater impact on
economy prosperity and must be carefully examined
alongside demographics.
consideration. A number of surveys (published
by the World Bank, the Heritage Foundation and
others) provide the basis for a better understanding
of detrimental government policies, such as
the controlled access to foreign exchange and
restrictions on payments, transfers, capital
transactions and foreign investments. Additionally,
insights into labor regulations, corruption, red tape,
weak infrastructure and political security conditions
prove valuable in determining the economic health of
individual countries.
Government policies, for example, play an important
role in enhancing or impeding economic growth
and their effect on behavior must be taken into
Table 1: Influential Factors for Economic Growth
Variable
Description
Source for Table 1 & 2
Real per capita GDP
Inflation adjusted Gross Domestic Product divided by midyear
population
World Bank
Productivity
Average education
Average number of years spent in education
World Bank
Exports ex-oil
Weighted average of 10-year export growth (80%) and 3-year
export growth (20%)
Energy Information
Agency
Rule of law
The property rights assessment of the ability of individuals to
accumulate private property, secured by clear laws that are fully
enforced by the state
Heritage Foundation
Government stability
Evaluates price stability and government expenditure including
consumption and transfers
Heritage Foundation
Population between 40
and 55
Average percentage for 2012 and 2025 projections
U.S. Census Bureau
Population over 65
Average percentage for 2012 and 2025 projections
U.S. Census Bureau
Population between 15
and 64
Average percentage for 2012 and 2025 projections
U.S. Census Bureau
Life expectancy
Life expectancy of total population
World Bank
Unemployment
Average unemployment rate from 1990 – 2011
World Bank
Freedom from
corruption
Derived primarily from Transparency International’s Corruption
Perceptions Index (2013 less the average of 1996 - 2012)
Heritage Foundation
Investment freedom
Measures the constraints on investment capital movement both
internally and externally (2013 less the average of 1996 – 2012)
Heritage Foundation
Giving
Charitable behavior – giving money, giving time, and helping a
stranger – according to the World Giving Index
Gallup’s World View Poll;
Charities Aid Foundation
Fiscal freedom
Tax burden imposed by government (2013 less the average of
1996 – 2012)
Heritage Foundation
Voter turnout
Average voter turnout in parliamentary elections from 1996
to 2013
International Institute
for Democracy and
Electoral Assistance
Labor Force
Behavior
13 Global population trends: An immutable force
at least in part the result of their higher education
level. As for emerging and frontier countries, labor
conditions are not ideal despite having younger
populations. Less developed countries also have lower
life expectancies and high unemployment rates which
make their labor forces less attractive.
To address this broad array of information and data,
we developed a proprietary formula that ranks
countries based on their demographic appeal. Thirty
factors were evaluated, testing their correlations with
real GDP in the 77 countries included in the MSCI AllCountry World Index and the MSCI Frontier Markets
Index. Only 15 factors had a correlation coefficient
that was statistically significant. As shown in Table 1,
the factors fall into three broad groups: Productivity,
Labor Force and Behavior.
Most of these rankings make sense but some are a
bit counter-intuitive. Bosnia and Herzegovina, for
example, are nowhere near the top of the corruption
rankings on an absolute basis. In fact, they are below
the middle of the pack, just ahead of Greece. They
have, however, shown the most improvement over the
last seven years.
Table 2 shows the rankings of China, India, and the
U.S. and also includes the best and worst ranked
countries. The numbers suggest that developed
countries have superior demographic characteristics
over their emerging and frontier counterparts, mainly
because they are far more productive. Developed
countries are also good collaborators as they have
infrastructures that allow for trust and innovation,
Comparing the U.S. to China and India shows just how
much of a head start the U.S. has in terms of measures
of productivity. While all three are top-tier exporters,
the U.S. ranks in the top 20 percent of all countries in
output per man-hour with China and India far behind
in the bottom one-third.
Table 2: Comparative Factor Rankings
Variable
China
India
U.S.
Highest Ranked
Lowest Ranked
Real per capita GDP
60
69
8
Norway
Nigeria
Average education
55
73
1
United States
Nigeria
Exports ex-oil
1
13
4
China
Philippines
Rule of law
75
46
20
New Zealand
Zimbabwe
Government stability
6
27
33
Singapore
Zimbabwe
Population between 40 and 55
10
60
49
South Korea
Zimbabwe
Population over 65
35
18
46
Qatar
Japan
Productivity
Labor Force
Population between 15 and 64
9
18
64
Qatar
Nigeria
Life expectancy
53
69
27
Hong Kong
Nigeria
Unemployment
7
5
22
Qatar
Mauritania
Freedom from corruption
16
21
61
Bosnia Herzegovina
Oman
Investment freedom
66
62
60
Serbia
Argentina
Giving
73
65
6
Australia
Ukraine
Fiscal freedom
58
44
53
Bulgaria
Brazil
Voter turnout
76
53
59
Vietnam
Saudi Arabia
36
52
16
Australia
Zimbabwe
Behavior
Total Rank (lower number is better)
Global population trends: An immutable force
14
The Outlook for the United States
Some Cautionary Notes
The demographic factors suggest that over the next 10
to 20 years, the U.S. has the potential to increase real
GDP per person to a level that would put it in the top
quartile of countries evaluated. The key demographic
drivers of this relatively favorable outlook for the U.S.
are:
The model also suggests that a cautionary stance
with regard to investments in emerging and frontier
markets is appropriate. Emerging markets have
been confronted with a host of challenges in recent
years, calling into question whether their rates of
economic growth can be sustained. Frontier markets
are appropriately named and carry substantial
risks. In many cases, they were colonized by
Western Europeans who installed infrastructures
and institutions designed to extract resources and
subjugate populations. Political institutions are still
lacking, military coups are common, property
rights and the rule of law are nonexistent or limited,
and corruption runs rampant, Botswana being
the exception.
1. The U.S. is the most educated country in the world
and hence the leader in technology, a key driver of
economic growth.
2.Excluding oil, exports from the U.S. are among the
highest in the world, proving its ability to produce
competitive products.
3. Property rights and the rule of law in the U.S. are
among the best in the world. Unlike most countries,
natural resources and mineral rights can be
privately held.
Tempering this favorable outlook, the U.S. is faced
with demographic challenges as well. Over the next 10
to 20 years, the number of people in the labor force
(ages 15-64) relative to the overall population will be
one of the lowest in the world. Furthermore, while
the levels of corruption and investment in the U.S.
are at reasonable levels, corruption has substantially
increased in the last three years and barriers to entry
into new markets are becoming more formidable. To
quote the 2014 Index of Economic Freedom report
from the Heritage Foundation regarding the U.S., “The
expansive use of government regulatory agencies to
manage economic activity, particularly in the financial,
healthcare and energy sectors, has opened the door
to increased perceptions of cronyism and corruption.
Although property rights are guaranteed and the
judiciary functions independently and predictably,
protection of property rights has been uneven, raising
charges of favoritism.”
As noted earlier, the U.S. is among the most
productive nations. The model suggests that only a
few countries possess the demographic profile that
could generate economic growth approaching that
of the U.S. over the next 10 to 20 years. Some of the
candidates include Australia, South Korea, Singapore,
Ireland, Switzerland, Chile and Germany.
15 Global population trends: An immutable force
Summary of Investment Implications
We expect worldwide economic growth to continue
(although coupled with high volatility) despite two
strong headwinds: a declining population growth rate
and a significant increase in the age of the population.
Individual countries will feel the effects of an aging
population and slowing growth in different ways.
Most notably, developed markets are much further
down that road and will need to deal with the massive
societal and financial demands that come with rising
average age levels. Emerging markets, while they
appear to have attractive demographic profiles, also
face challenges, particularly with allocating resources
effectively and encouraging innovation. As suggested
throughout this paper, demographic trends play out
over very long-term timeframes and the following
list of investment implications likewise extend into
the future:
• From an investment perspective, the natural
progression of aging (and ultimately, retirement)
will be accompanied by a shift to a more
conservative strategy. Over time, investors tend
to reduce risk by increasing allocations to incomeoriented alternatives, shortening investment time
horizons and materially slowing the consumption of
goods. Taken to its extreme, this type of environment
would likely suppress the appetite for risky upstart
enterprises and perhaps even foreshadow a general
disinterest in equities and other asset classes
such as real estate. Falling asset prices pose a
deflationary risk which can lead to sustained periods
of economic malaise, as witnessed in Japan over the
last 20+ years.
• The implications for national governments are even
more profound. Lower incomes lead directly to a
reduction in tax revenues, usually when the
access to social programs begins to accelerate.
At the same time, a smaller proportion of the
population contributes to entitlement pools, creating
additional fiscal pressures on governments. The
necessity to issue debt to pay government
obligations then forces interest rates higher. Even
more troublesome, in a deflationary environment,
debtor nations need to repay obligations with more
expensive money.
• Developed markets have more than 10 times the
productivity of the largest emerging markets. This
advantage will continue because the political
and economic institutions of developed countries
have been in place for many decades. However,
having an older demographic profile suggests that
incremental growth will be more difficult to attain.
Fortunately, there may be offsets to this seemingly
insurmountable dilemma; for example, developments
such as those occurring in the U.S. energy sector
and other technological advances could overwhelm
the effects of an aging population. Additionally,
aging demographics will benefit healthcare
businesses and numerous other industries that cater
to the senior set such as leisure-time activities and
investment management services.
• Increasing demand for income-producing
investments from senior citizens will by definition
produce higher prices and lower yields for bonds.
At the same time, escalating supply driven by
deficit-related debt issuance will provide an offset
over the long term. Unfortunately, today’s low interest
rate environment penalizes savers and leaves little
potential for long-term gains in most fixed income
securities. High-yielding stocks of companies with
solid balance sheets and earnings streams may well
outperform other investment choices while Master
Limited Partnerships should also benefit.
• Emerging economies are typically younger
demographically and larger in total than their
developed counterparts. The relatively rapid
development of the middle class can provide
attractive supply/demand dynamics that favorably
impact the entire global economy. Companies that
serve emerging markets will continue to be
attractive sources of growth both for the foreseeable
future and over the long term, as will investments
in global resources such as agriculture, farmland
and water. However, while emerging and frontier
markets will continue to generate growth
opportunities, many of them lack the open, inclusive
political and economic institutions that foster
true innovation and risk-taking. Frontier markets,
in particular, are high-risk propositions as reflected
in our model, requiring extreme care and patience
and, importantly, professionally managed investment
products.
• An underlying assumption in Abbot Downing’s
forecasting model has been that stock market
valuations for developed and emerging markets will
converge over time. Based on our work revealed
in this paper, we are convinced that the timeframe
for convergence should be extended, thereby
lowering somewhat the expected returns and hence
the investment appeal of emerging markets relative
to their developed peers.
• Research from our Wells Fargo colleagues and others
has consistently concluded that asset allocation
is responsible for more than 85 percent of the
variability of investment returns. Not surprisingly,
demographics play a key role in formulating Abbot
Downing’s asset allocation policy. Reflecting the
observations and investment implications contained
in this paper, our global economic outlook, which is
incorporated into our current asset allocation model,
anticipates lower than consensus growth.
Global population trends: An immutable force
16
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The information and opinions in this report were prepared by Abbot Downing and other sources within Wells Fargo Bank, N.A. Information
and opinions have been obtained or derived from information we consider reliable, but we cannot guarantee their accuracy or completeness.
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