What investors need to know about Gen Z
What investors need to know about Gen Z
Ever heard the term “OK Boomer” or “Quaking” before? What about “Yeet” or “Fam” or “Let's Get This Bread!”1 You will soon be hearing these phrases from those entering today's workforce. We are in the early days of the rise of Generation Z (“Gen Z”) – those born after 1995. Their impact will be swift and profound and its effects will ripple through the workplace, consumption and technology alike.
To understand this new generation, companies – and investors – need to appreciate the environment in which they came of age and the forces that shaped their outlook.
Generations at a glance
Source: Cazenove Capital, BofAML
Gen Z has never known life without Google. They are true digital natives: from earliest youth, they have been exposed to the internet, social media networks and mobile systems. Nearly half say they are online “almost constantly” and a quarter of them will spend more than ten hours per day on their phone. This adds up to roughly six years of their life on social media – more time than they will spend eating, studying and socializing combined, according to 2020 research from the World Health Organisation.
Gen Z is now the world's largest population cohort, with 2.5 billion people. And they have the fastest-growing income, according to consultancy Euromonitor, set to quadruple over the next decade to around $33 trillion.
Gen Z accounts for a third of the global population
Source: UN, Euromonitor
Look East not West
Importantly, nine out of ten members of Gen Z live in Asia and other emerging markets. While developed markets suffer from “peak youth,” Gen Z increasingly looks like the emerging markets’ secret weapon.
India stands out as the key country to watch, accounting for 20% of Gen Z globally. As the country’s young become more affluent, their financial needs will also grow – and they will expect these needs to be met with the technological sophistication that applies to other areas of their lives.
One company that we think is set is to benefit is banking group HDFC. It is one of the largest payment banks in India, with a 40% market share of card transactions and 50% in e-commerce. Its scale and efficient technology (95% of transactions are online) gives it a significant lead on the competition.
Members of Gen Z tend to have strong views about climate change. They expect companies to demonstrate their commitment to the environment - and other societal challenges as well. They increasingly expect brands to “take a stand” on important issues – such as the use of plastics and the circular economy.
This should play to the strengths of Ball Corp, a US-based supplier of aluminium packaging to consumer industries. The move away from single-use plastics could result in the need for an additional 25 billion aluminium cans.
Consumption appears to be gaining a new meaning for Gen Z. Increasingly, it is about having access to products or services – not necessarily owning them. In this model of consumption, unlimited access to goods and services – such as video streaming and subscriptions – creates value.
Disney, and its relatively new streaming service Disney+, is a good example. From a standing start in January 2020, the company grew its subscriber base to c.90 million by the end of the year. This was clearly aided by the unusual circumstances of a pandemic, but the strong content catalogue of Disney+ could see it grow to rival Netflix, which today has around 200 million subscribers.
When they do buy things, Gen Z’s expectations are very different. They expect to access and evaluate a broad range of information before purchases. Companies need to be attuned to this generational shift and evolving consumer landscape.
An evolving investment landscape
Auguste Comte, a nineteenth-century French sociologist and philosopher, famously said that “demography is destiny.” The idea is just as relevant today. Generational shifts will continue to play an important role in determining future behaviour. Businesses must rethink how they deliver value to the consumer and practice what they preach when they address issues such as climate change.
As fund managers, it is our job to ensure that we understand the forces that shape the views and aspirations of Gen Z and invest in companies that are flexible enough to adjust. Gen Z will cause industries and businesses to rise and fall. The possibilities emerging are as transformational as they are challenging.
1 OK Boomer: Slightly controversial with older generations, this is Generation Z's dismissive response to suggestions from anybody older. E.g. "You should get a cheque book for your bank account" "OK Boomer."
Quaking: Shocked or surprised in a positive way. E.g. "My cooking's so good! Gordon Ramsay is quaking."
Yeet: An exclamation used as an emphatic "Yes!" with the precise meaning depending on context - it could express excitement or be a battle cry. Fam: Used to describe those you consider close friends.
Let's Get This Bread!: A pep talk expression similar to "Let's do this! We got this, guys!" (Editor's note: Has absolutely NOTHING to do with bread.)
The generations that came before Z: shaped by the context of their eras
The formative years of the “Silent Generation” (born between 1928-1945) occurred during or in the shadow of the Second World War. “Baby Boomers” (born 1946 to 1964) grew up during the Cold War and the mass adoption of television.
Generation X, born 1965 to 1980 (also known as the "latchkey generation" because they were left to their own devices after school while their parents were out earning a crust), grew up against the backdrop of the end of the Cold War, Live Aid and the rise of the computer. Millennials (born 1981 to 1995) were aged between five and 20 when the 9/11 terrorist attacks shook the world. They came of age during the transformative impact of the Internet.
This article is issued by Cazenove Capital which is part of the Schroder Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.