Forsome forward-looking investors, now's the time to start thinkingabout how to structure a portfolio for a post-boomer economy.(Photo: Shutterstock)

(Bloomberg) — Move aside, millennials.

This is the year that Generation Z becomes the biggest consumercohort globally, displacing millennials as a top obsession forinvestors trying to figure out how to cash inon their unique shopping, eating and media habits.

While they might still be in school, they have spending power tothe tune of $143 billion in the U.S. alone, leaving fundmanagers salivating at the chance to harvest some of that potentialalpha.

“Gen Z has their finger on the pulse on the companies that speakto them, that they think are going to grow with them,” said PhilBak, CEO of Exponential ETFs. “Therefore they're probably bettersuited to pick those investments than some of the more seasonedfinancial professionals.”

Investors have always been interested in young consumers and howtheir habits might open up new opportunities, but much of thelong-held thinking on college kids and tweens—invest inbeer stocks or TV networks or junk food—don't hold uptoday.

Gen Z, roughly between the ages of seven and 22, were born afterthe internet went mainstream and occupy a world where marijuana isgoing legal. Anything and everything can be delivered to theirfront door with a swipe of a finger and they grew up on platformslike Snapchat and Instagram, where the influencer culture has takenhold.

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 ofFacebook, or even mobile phones, these new consumers live onInstagram and other platforms. In fact, 52 percent said theyprimarily find out about new products from social media, a jump of10 percentage points from millennials and double the rate for theirGen X parents, according to a recent survey by BloombergNews and Morning Consult.

That means influencers—celebrities or everyday people with bigsocial media followings who are paid to promote products—can havean outsized impact with this cohort where nearly six out of 10self-diagnose spending too much time on their phones.

Take for instance Kylie Jenner, 21, who promoted hermakeup line on Instagram and is now considered theyoungest self-made billionaire. Her makeup line made its way overto Ulta Beauty Inc. last year and the company's shares are up morethan 40 percent in 2019. She's so influential, one tweet from herin February 2018 disparaging Snapchat wiped out$1.3 billion in market cap.

Bloomberg recently constructed a hypothetical stock portfoliocalled The Influencer Economy ETF, or ticker GENZ. The fund is upabout 15 percent since the start of 2018, outpacing thegain in the S&P 500 Index over the same period.

GENZ's holdings are weighted based on the rank of theirassociated influencer, per Forbes.com, which incorporates socialmedia followers and rankings from other agencies.

The top holdings include Electronic Arts Inc., Nike Inc., AdidasAG, Coca-Cola Co., T-Mobile US Inc. and Under Armour Inc. based offof partnerships with influencers such as Cristiano Ronaldo, SelenaGomez, Ariana Grande and Dwayne “The Rock” Johnson.

2. They have different vices than other generations.

Younger consumers are wary of nasty hangovers and eager to wakeup on the weekends feeling fresh so they can get outdoors andcapture selfies. Beer in particular is going through a slump asAmericans cut back on alcohol.

That's bad news for Anheuser-Busch InBev SA and Molson CoorsBrewing Co., which make the mass-market brands like Bud Light andCoors Light that are getting hit the hardest.

Marijuana, meanwhile, is going mainstream. It's perceived ashealthier than alcohol by many Gen Z consumers and is now legal foradult use in 10 U.S. states.

Gen Z consumers are coming of age in time when the decades ofstigma around weed—think reefer madness—are fading away as morestates legalize and stressed out, tired Americans look to cannabiscompounds to alleviate insomnia and anxiety, or just unwind after ahard week of work.

Investors have two main options for betting on weed. They caninvest in Canadian companies—think Canopy GrowthCorp. and Aurora Cannabis Inc.—which benefit from federallegislation there but also are operating in a country witha population smaller than California.

There are also the so-called multi-stateoperators in the U.S., like Curaleaf Holdings Inc. andGreen Thumb Industries Inc. The U.S. legal market isalready larger than all of Canada's, but federalprohibition creates hurdles for the American companies—andleaves some money managers wary of advertising their bets.

3. They don't have to go to stores.

Gen Z could be the first generation to truly embrace onlinegrocery shopping—though maybe not yet. Just 83 percent of them saidthey primarily purchase groceries at a physicalstore, compared to 95 percent of baby boomers and 87percent of millennials.

Surveys have also indicated that Amazon is one of thefavorite brands of Gen Z consumers, who've never lived ina time without the e-commerce giant.

It's worth noting that the oldest members of Gen Z arebarely out of college by most measures, not exactly peakgrocery-buying age. Still, they've grown up in a world wheredigital shopping is ubiquitous.

As of now, a tiny percentage of groceries are purchased online,because most people still want to touch their tomatoes. But sinceAmazon.com Inc. announced a deal to buy Whole Foods almost twoyears ago, Kroger and Walmart, the largest sellers of groceries inthe U.S., have spent billions investing in technology and keepingprices low as they brace for the digital invasion.

Whoever figures out the equation for grocerydelivery—human-delivered or self-driving cars—will have a lot togain.

4. They choose their brand loyalties carefully.

The rise of Gen Z could be bad news for traditional clothingretailers like Gap Inc. and Macy's Inc., already battered by theshift to buying clothing online. The next generationis also embracing second-hand apparel, which willbe bigger than fast fashion within the decade, accordingto Thredup's 2019 Resale Report.

Thredup, fashion resale website, says more than one inthree Gen Z shoppers will buy used clothing this year, versus lessthan one in five boomers or Gen X consumers. That seems to stem, inpart, from the generation's interest in environmentalissues and ethical shopping.

Apparel brands looking to connect with younger shoppers havetried embracing edgier brand ambassadors, a departure from the dayswhen consumer companies went to great pains to avoid politics.

That's because Gen Z actually wants corporations to take a standon issues, with 40 percent saying they'd pay more for a product ifthey knew the company was promoting gender equality issues and 42percent for racial justice initiatives.

Nike understands. Last year, it released an ad featuring ColinKaepernick, and while the inclusion of the controversialquarterback-turned-activist initially spooked investors, the shareshave since rebounded. And there are indications that ads havehelped boost sales.

“A lot of times in this industry people want to overcomplicatethe process of picking stocks,” Exponential ETFs' Bak said. “Wethink that there's a pretty high correlation between companies thatfrom your personal experiences you think are good andhigh-growth companies.”

5. They eat (somewhat) differently.

Gen Z consumers are more likely to skip meat than the older U.S.cohorts, the latest dining disruption with big implications forfast-food restaurants and packaged-food giants. Burger King thisweek announced a test of a plant-based Impossible Whopper,another sign that even the purveyors of indulgent onion rings andbig burgers see a shift ahead.

Just a few years ago, the narrative was that millennials werekilling off traditional fast-food chains, opting instead for theso-called fast casual competitors like Chipotle Mexican Grill Inc.and Panera Bread that were promising higher quality and cleaneringredients with the same quick convenience.

It's true that eating habits have shifted, but old-school burgerchains like McDonald's Corp. and Burger King still dominate in therestaurant industry. McDonald's has bounced back from a salesslump, thanks in large part of all-day breakfast, and recentlyinvested $300 million in a technology company it says will helpboost drive-thru sales. It turns out even today's teens still wantfries with that.

It's more Big Food that's feeling the pain. Large packaged-foodmakers like Kraft Heinz Co. and Campbell Soup Co. have beenbattered in recent years by the shift away from traditional brandsthat dominated grocery stores for decades. They've tried to reshapetheir portfolios, but have struggled to resonate with youngerconsumers.

So what does this all mean for savvy investors trying to tapinto Gen Z's buying habits?

Don't stereotype generations, but be aware of overalldifferences

People in generational cohorts are never as uniform as marketerswould like, and with the youngest still in elementaryschool, there's still some time before the preferences of the widergeneration shake out.

But for some forward looking investors, now's the time to startthinking about how to structure a portfolio for a post-boomereconomy.

“Gen Z are likely still on the younger end to consider investingin their consumption patterns,” said Jay Jacobs, head ofresearch and strategy at Global X, which created amillennial-tracking ETF called MILN. But “the millennialdemographic tells us that there can be clear and obviousdifferences in the ways that certain generations spend their money.As Gen Z eventually enters their prime earning years, some of thesetrends could start to become more concrete and visible.”

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