5 ways for investors to make money off millennials

You don’t have to look far to find proof behind the old saying that “demography is destiny.” Baby boomers tend to get most of the attention on this front, as evidenced by observations about how older Americans are reshaping health care and the U.S. Social Security system.

But if Boomers have gotten us to where we are in 2019, millennials will assuredly get us to where we are headed. Sure, millennials aren’t isn’t buying homes or cars or investing in stocks at the pace of their elders, but as a group they are certainly not broke and surfing mom’s couch as some of the clichés make them out to be doing.

Last year, a Pew Research report showed that Americans born between 1981 and 1996 had become the largest generation in the labor force. And given the obvious struggles of their elders, there are multiple data points proving millennials are much more responsible with money than their elders were. This includes the fact that those under 35 have an average of about $5,800 in credit card debt, compared with $8,200 for 35-44-year-olds and more than $9,000 for 45-54-year-olds, according to ValuePenguin.

Millennials clearly have financial power. And investors who play by the old rules better start looking to the future instead of the past.

If you’re looking to cash in on millennial behavior, there are a few one-stop funds out there, including Principal Millennials Index ETF GENY, +0.31%, which has slightly outperformed the S&P 500 SPX, +0.03% over the last two years, and Global X Millennials Thematic ETF MILN, -1.38%, which is up 40% over the past 24 months to more than double the performance of the S&P 500.

But if you want to buy individual trends, here are five worth a look:

Sure, millennials as a group not be in the market for SUVs. But that doesn’t mean they sit at home. Uber Technologies UBER, +3.94% and Lyft LYFT, +2.41% are mainstays of this generation and an obvious part of their future.

An Orbis Research report predicts a roughly 20% annual growth rate that propels the total ride-sharing market to a massive $220 billion by 2025.

You could try to guess which firm will get to self-driving cars first, either by investing in these ride-sharing firms or making a pure play on the artificial intelligence behind this technology via a company like Alphabet GOOG, +0.13%GOOGL, +0.04%. However, ETFs are popping up to help investors capture the top players in the space. These include KraneShares Electric Vehicles & Future Mobility Index ETF KARS, +1.39% and Global X Autonomous & Electric Vehicles ETF DRIV, +1.06%. Both have legacy auto makers in their portfolios as well as companies working on emission-free EVs, but if you want to play the future of transportation they offer simple ways to do so.

Investors who have trusted old-school consumer staples names over the past few years have been burned by many big names. Shares of Campbell Soup CPB, +2.92% and cereal giant General Mills GIS, -1.91% have both gained less than 10% over the past five years compared with a roughly 50% gain for the S&P 500.

That’s because people’s tastes have moved away from these companies — driven in large part by millennials eating fresher and more natural foods. Organic food sales now represent almost 6% of total food sales in the U.S., according to the Organic Trade Association. That tally rose about 6% in 2018 to reach $47.9 billion, which was an increase of more than 33% from 2014 and roughly double the total in 2009.

Individual names in the space such as organics distributor United Natural Foods UNFI, +11.73% are worth a look to play this trend, but can be volatile as they are smaller and less mature than typical staples names. For those looking to diversify broadly across the organics space, The Organics ETF ORG, +1.38% offers a one-stop shop with holdings that include UNFI, Sprouts Farmers Market SFM, +5.57% and others.

Gaming isn’t only kids’ stuff, with U.S. sales of videogames topping $43 billion in 2018. More important, the Entertainment Software Association estimates the average gamer is 34 years old — meaning millennials are the key customer base for this industry.

There are many ways to play this trend, including software giant Activision Blizzard ATVI, +1.52%, whose stock has surged 150% over the past five years to triple the S&P 500’s gain. But as they must do with movie studios and other entertainment-industry stocks, investors need to carefully consider production pipelines and whether these software companies have another round of hits in the works.

A way to play the gaming trend broadly, however, is via ETFMG Video Game Tech ETF GAMR, -0.57%. The fund holds top game developers, including Activision Blizzard, Take-Two Interactive TTWO, -2.85%, and the iconic Nintendo NTDOY, -1.32%.

If you saw the story this summer about top CEOs saying that shareholders are no longer a company’s primary constituency, you may have wondered what crazy scheme was behind such a statement. Well, the answer is simple: By putting forth more responsible business models, these CEOs are actually serving their shareholders — or at least, the millennials who are increasingly likely to be their core investors in the years ahead.

While it’s true millennials as a group are investing less than older generations, they are very much interested in ESG strategies — looking to companies that care about environmental, social and governance concerns, such as having women on the board of directors. One study found that 86% of millennials are interested in these kind of responsible investing strategies. This generation is also twice as likely to fund an investment if social responsibility is part of the way it makes money.

You could run down individual companies that rank highly on this spectrum, but a simple way to include the best actors on Wall Street is iShares MSCI KLD 400 Social ETF DSI, -0.24%. With more than $1.5 billion in assets under management, this ETF is one of the most popular of its kind. The ETF is benchmarked to an index of about 400 large U.S. companies and kicks out those at the bottom. It’s effectively an ESG filter on the S&P 500, ensuring you are in-step with this trend but still get a diversified group of large-cap stocks that will drive the American economy.

While there is plenty of uncertainty about how durable these trends are or which companies will succeed, one thing is certain: Whatever the future holds, it will be wired in a big way.

According to Pew Research, 96% of Americans under age 29 have smartphones with apps and modern tools, with 92% of those 30 to 49 carrying a smart device, such as an iPhone. That compares with 79% smartphone ownership for those 50 to 64, and just 53% for those 65 and older.

This trend toward connectivity has been pushing all manner of businesses to develop digital strategies. A less-obvious play exists for long-term investors who want to be a part of the digital infrastructure and cash in on the modern telecommunications system that brings everyone together.

These kind of connected investments include mobile communications hardware companies Skyworks Solutions SWKS, +0.73% and Xilinx XLNX, +1.15%, or even real-estate investment trusts, such as telecom tower operator Crown Castle International CCI, -2.90%. If you want to hedge your bet, Defiance Next Gen Connectivity ETF FIVG, +1.32% offers a play on all these wireless opportunities including entrenched telecoms that are unlikely to go anywhere, such as AT&T T, +2.15%.

Read: Here’s how to capitalize on the electric car revolution — without buying Tesla’s stock

More: 3 things millennials are getting wrong about Social Security

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