Investing
Obesity: how to profit from expanding waistlines…
With over a billion overweight people around the world, can investors benefit from this new mega trend?
News stories about people getting fatter no longer have the shock factor – the West has been getting wider around the waist for decades now.
Unfortunately, obesity is no longer just the concern of the West. As developing economies continue to get richer, so do the diets of their locals.
Across the world, there are now 1.6 billion people classified as overweight, with a further 500 million classed as obese or morbidly obese.
Approximately 65% of the world’s population now lives in countries where obesity and overweight health risks kill more people than underweight health risks. That figure includes every high-income nation, most middle-income nations, and a fast growing list from the developing world.
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One consequence of obesity is Type 2 Diabetes, which is on the increase. Add to that heart disease, certain cancers and bone problems, you have a cocktail of chronic diseases that is forcing governments to get up and take action.
Closer to home, recent reports suggest NHS hospitals across the country are straining from the weight of having to deal with obesity. Some hospitals have warned that they will need ‘zoo scanners’ to deal with their heavier patients.
In England, most people are overweight or obese – 61% of adults and 30% of children aged between 2 and 15.
Health problems associated with being overweight or obese cost the NHS more than £5bn every year.
That’s £5bn per annum and unless something drastic is done, this figure is set to get much, much bigger.
While governments attempt to tackle this weighty issue, investors may be able to help while ending up with big returns at the same time.
A report last year from Bank of America Merrill Lynch mapped the investment opportunities arising from the global obesity epidemic with four sectors taking centre stage – 1) Pharmaceuticals & Health Care; 2) Food; 3) Commercial Weight Loss, Diet management & Nutrition; and 4) Sports Apparel & Equipment.
The report highlights that global obesity is a mega-investment theme for the next 25 to 50 years, and efforts to tackle it will shape thinking by policy makers around the world.
Adrian Lowcock of Hargreaves Lansdown says: “The obesity issue is actually one facet of a much wider issue and investment opportunity. Healthcare spending is likely to increase for a number of factors.
“In the West we have an ageing population which is expected to live longer driving a demand for a wide range of medical devices and healthcare services. The West is also suffering from having rich diets and varied full lifestyles the impact of this has been increases in diabetes and obesity as well as injuries, for those who are active.
“In Asia they, as yet, do not have the same issues but there is a growing demand in healthcare due to a growing middle classes with aspirations for western standards of living. Part of this aspiration is the rich diet we have in the West. The results are likely to be similar, a growing obesity issue and diabetes. Also as the Asian population gets richer they will expect better and more expensive healthcare so we can expect spending to rise.”
While plump was once a sign of wealth and success, it is now a sign of bad diet and poverty, and it is this change in diet and perception that may be the key to the success of obesity as an investment theme.
Experts say food brands are well positioned to profit from this change in tastes, both in the short and long term. Companies that provide the middle classes of developing countries with the western diets they want now, and later when the trends changes to more health conscious diets.
Henry Boucher, lead manager of Sarasin AgriSar, a fund that tracks global consumption as a theme, takes the view that while obesity rates are no doubt increasing, looking at the way people eat and what they eat is a better investment play.
Boucher says: “We look at the whole food chain and in particular diet change for positive reasons. For instance peoples incomes rising is positive, and in turn their diets will change.
“Looking at the changes in diet overall is very interesting. It is changing for both good and bad. People are spending more money on packaged foods and value added foods, and this is important.”
Boucher says that although parts of the planet are over-eating, not everyone is doing so. In Asia, protein consumption is rising immensely, so companies like Yum! Foods (of KFC fame) and Asian supermarket group, Dairy Farms, which is bigger than Tesco and dominates the Asian market, are well positioned.
What Boucher points out rightly is that people will continue to need to eat, regardless of whether they are dieting or not.
He adds: “The matter funnily enough is that the only people who profit from fatness are the people who are helping solve the problems caused by it, like health companies – those who treat effects of diabetes etc.”
Darius McDermott from Chelsea Financial Services says: “You would assume that fast food companies would be at risk, as would food retailers which deal in less healthy products. But you just need to look at tobacco companies to realise that the companies that may lose out, will soon find other markets in which to sell.
“The good companies will recognise that they need to adapt to include healthier products in the range, for example.”
The pharmaceutical sector is a more obvious beneficiary of the fight against obesity – both for preventative medicines and to deal with health problems as they develop, whether that is slimming drugs, food supplements, medicines or existing conditions, etc.
McDermott adds: “Diet companies have been around for years, as have gyms, sports equipment providers, etc, so I wouldn’t imagine a boost in these sectors until such time as governments impose tighter regulations or refuse to help people who haven’t done certain things themselves already. Once governments do decide to tackle this problem more, any company linked to government initiatives will benefit.”
Investors are cautioned that investing in obesity alone is not diverse enough for a healthy portfolio and those keen to profit from the sector should look at healthcare as a wider theme rather than focus solely on obesity.
Ailsa Craig, manager of the International Biotech Trust, says: “With healthcare it is better to invest in a broad range of companies that specialise in different types of drugs and targets different diseases rather than focus on obesity alone.”
Craig points to companies that are investing in heart disease solutions and other chronic diseases as better plays in healthcare and reminds investors that all it takes is a change of policy, other major concerns that require more funding, a scandal or a lawsuit and even a mega-trend investment can be a financial disaster.
Boucher agrees that for investors who want to play the healthcare sector, looking at health and consumption and in particular the changing trends within global diet itself is a better play than focusing solely on weight.