Move aside, millennials.
This is the year that Generation Z becomes the biggest consumer cohort globally, displacing millennials as a top obsession for investors trying to figure out how to cash in on their unique shopping, eating and media habits. While they might still be in school, they have spending power to the tune of $143 billion in the U.S. alone, leaving fund managers salivating at the chance to harvest some of that potential alpha.
“Gen Z has their finger on the pulse on the companies that speak to them, that they think are going to grow with them,” said Phil Bak, CEO of Exponential ETFs. “Therefore they’re probably better suited to pick those investments than some of the more seasoned financial professionals.”
Investors have always been interested in young consumers and how their habits might open up new opportunities, but much of the long-held thinking on college kids and tweens—invest in beer stocks or TV networks or junk food—don’t hold up today. Gen Z, roughly between the ages of seven and 22, were born after the internet went mainstream and occupy a world where marijuana is going legal. Anything and everything can be delivered to their front door with a swipe of a finger and they grew up on platforms like Snapchat and Instagram, where the influencer culture has taken hold.
For investors looking to factor Gen Z into their portfolios, here are some broad trends they may want to consider:
1. They Can Be Influenced
While older millennials graduated college before the rise of Facebook, or even mobile phones, these new consumers live on Instagram and other platforms. In fact, 52 percent said they primarily find out about new products from social media, a jump of 10 percentage points from millennials and double the rate for their Gen X parents, according to a recent survey by Bloomberg News and Morning Consult.
That means influencers—celebrities or everyday people with big social media followings who are paid to promote products—can have an outsized impact with this cohort where nearly six out of 10 self-diagnose spending too much time on their phones.
Take for instance Kylie Jenner, 21, who promoted her makeup line on Instagram and is now considered the youngest self-made billionaire. Her makeup line made its way over to Ulta Beauty Inc. last year and the company’s shares are up more than 40 percent in 2019. She’s so influential, one tweet from her in February 2018 disparaging Snapchat wiped out $1.3 billion in market cap.
Bloomberg recently constructed a hypothetical stock portfolio called The Influencer Economy ETF, or ticker GENZ. The fund is up about 15 percent since the start of 2018, outpacing the gain in the S&P 500 Index over the same period. GENZ’s holdings are weighted based on the rank of their associated influencer, per Forbes.com, which incorporates social media followers and rankings from other agencies. The top holdings include Electronic Arts Inc., Nike Inc., Adidas AG, Coca-Cola Co., T-Mobile US Inc. and Under Armour Inc. based off of partnerships with influencers such as Cristiano Ronaldo, Selena Gomez, Ariana Grande and Dwayne “The Rock” Johnson.
2. They Have Different Vices
Younger consumers are wary of nasty hangovers and eager to wake up on the weekends feeling fresh so they can get outdoors and capture selfies. Beer in particular is going through a slump as Americans cut back on alcohol. That’s bad news for Anheuser-Busch InBev SA and Molson Coors Brewing Co., which make the mass-market brands like Bud Light and Coors Light that are getting hit the hardest.