The term “secular” has often been used to describe industries and businesses that are neither seasonal nor cyclical, and are unaffected by short-term economic trends. The most commonly-sited secular investment themes have been technology-focused: Cloud, E-Commerce, Artificial Intelligence, Online Advertising and Streaming. The notion behind secular investing is that, regardless of the short-term fluctuations, the demand and growth for these assets are inevitable, and should remain consistent over the longer-term.

We believe that investors should also be watching a few other key themes, which seem to be linked to millennial consumer habits, and don’t appear to be going anywhere, anytime soon.

Pets
Millennials have embraced not just pet-ownership, but the “humanization” of their pets. Pets are increasingly being treated like members of the family, which means owners are spending increasingly more on their care and well-being. According to the American Pet Products Association (APPA), over the past 30 years, pet ownership has increased from 56% to 68% of all households. Millennials and Generation Z consumers now account for 62% of pet owners. These pet owners prioritize healthier foods, premium brands & services, and advanced healthcare for their pets. This has led to a surge in profitability for an industry estimated to be worth $75 billion.  There are a number of different ways that investors can gain exposure to the pet industry. Laboratory diagnostics for animals provide the tools for advanced veterinary medical care. Those companies that can successfully integrate diagnostic tools with information management technologies, like the “cloud,” can provide superior patient management and workflow optimization. Animal pharmaceuticals is another avenue for investing in pets. This industry benefits from the niche-like nature of their markets, which results in less competition and threats of “generic” drugs that typically disturbs traditional pharma. After all, how many skin irritation creams for birds does the market need?  Finally, pet retail is another way to access this industry. Companies focused on e-commerce/delivery, personalized customer service, and broad product offerings are positioned well for success

Beauty

In the world of “selfies” and “high-definition” cameras, cosmetics have become a necessity for a generation of young adults, who document their lives online. Spending on beauty products in the US alone has led to a $145 billion cosmetic and salon services market. This sector is science-driven and highly innovative, looking to expand sales with natural ingredients and more personalization, while keeping sustainability and “cruelty-free” practices in mind. Nielson polls have reported that 73% of millennials are willing to pay more for sustainable goods. More importantly, in a survey performed by Statista, 45% of US consumers aged 18 to29 years old spend $50 or more per month on beauty and personal care products, whereas that number is only 18% for consumers aged 60+. In a nut shell, investing in the beauty market is about getting exposure to an industry that is becoming more “recession-proof” for a large millennial customer base. Investors in this space should be targeting companies that drive innovation, manufacture or distribute valuable brands, use AI and customer relationship management software to improve sales, and have implemented successful loyalty programs.

Subscriptions

The convenience provided by subscription services has made them attractive to young adult consumers, who largely prefer renting over owning. This trend highlights the shift from ownership to usership.   According to a survey conducted by Vantiv and Socratic Technologies, 92% of millennials have active subscription services and 61% have given subscriptions as a gift. While many have already ventured into media streaming services, it is noteworthy that many other industries are implementing a similar revenue model. As a result, according to Forbes, subscription company websites have grown by over 800% since 2014.  Accordingly, investors can benefit by adding exposure to companies that take part in this secular trend. We can now see subscriptions for just about anything: software (SAAS), fashion, travel, autos, heavy equipment, pet food and education. The companies that employ subscription-based models provide more revenue predictability for their stocks, as customers become regulars and oftentimes increase their spending on other goods. Investors should look for companies that continually improve the value proposition of their subscriptions with attractive loyalty benefits, cross-selling opportunities, and the use of data analytics to continually improve product offerings and customer experience. According to Accenture, 77% of millennial and Gen Z consumers are interested in curated subscriptions to products and services. Investors can also look at software companies that help corporations handle back office functions for subscriptions, such as billing, revenue recognition and analytics.

We encourage investors to learn more about investing in these secular themes. Contact your advisor to discuss what companies are leading in their respective industries and how it may fit within your portfolio.