UAE. Increasing efforts to tackle obesity over the coming decades will form an important new investment theme for fund managers, according to a new BofA Merrill Lynch Global Research report called “Globesity - The Global Fight Against Obesity.
“Global obesity is a mega-investment theme for the next 25 years and beyond. Obesity may be the most pressing health challenge facing the world today and efforts to tackle it will shape thinking by policy makers and in boardrooms around the world,” said Sarbjit Nahal, equity strategist at BofA Merrill Lynch Global Research.
BofA Merrill Lynch has identified a Global Fighting Obesity Exposure Stocklist-50+ centering on four areas: Pharmaceuticals & Healthcare; Food; Commercial Weight Loss, Diet Management & Nutrition; and Sports Apparel & Equipment.
The report by the BofA Merrill Lynch ESG (Environment, Social, and Governance) and Sustainability team identifies that efforts to reduce obesity is a “megatrend” with a shelf-life of 25 to 50 years. It charts the rise of obesity globally and the ballooning costs. BofA Merrill Lynch analysts across several sectors have collaborated to identify the sectors and companies developing long-term solutions.
Earlier this year, the firm’s biotech team highlighted in “The Skinny on Obesity” the growing potential for development of new drugs to combat weight gain. “The FDA has historically had little risk tolerance for weight loss drugs, but recently has shown increased support for their development,” said Steve Byrne, biotechnology analyst at BofA Merrill Lynch Global Research.
Globally, 500 million people are obese and 1.4 billion are overweight. Obesity is the fifth greatest cause of death, leading to 2.8 million fatalities each year. Worldwide prevalence of obesity doubled between 1980 and 2008, according to the World Health Organization.
By 2030, 65 million more Americans will be obese if current trends continue. While its impact is well-known in the West, obesity is rising quickly around the world. Obesity in Europe has tripled in 30 years. It is growing rapidly in emerging markets as diets westernize. Brazil, where 16 percent of the population is obese, is on track to match U.S. obesity levels by the 2020s. Obesity has reached levels of up to 20 percent in Chinese cities. A quarter of Russian women are obese.
Growing costs and tighter regulations spur fight against obesity
The costs of managing obesity are much greater than previously believed. In May 2012, the U.S. Institute of Medicine estimated the annual cost of obesity-related illness in the U.S. alone is more than $190 billion – equal to 21 percent of annual medical spending. Previous studies estimated 10 percent.
Medical costs for treating obese patients are 40 percent higher than for non-obese patients. Treating obese patients comes at a higher premium than treating smokers. Obesity adds 50 percent to annual medical costs, while smoking adds 20 percent. High levels of global childhood obesity and growing obesity in emerging markets will further increase global costs.
As happened with smoking, it is likely that the growing cost burden of obesity on governments, corporates and wider society will spur collective action and greater regulation. BofA Merrill Lynch expects widespread scrutiny of lifestyle aspects associated with obesity including food and drink, schools, work environments, insurers, tackling sedentary lifestyles, and encouraging increasing physical activity.
Investment ideas for fighting Globesity
Investors should take a long term view and a broad perspective in selecting stocks as part of the Globesity theme, in our view. BofA Merrill Lynch Global Research has identified more than 50 global stocks across four key entry points:
Pharmaceuticals & Health Care – We look at companies taking advantage of the FDA’s increased support for obesity drug development. We also highlight companies tackling related medical conditions and needs including diabetes, kidney failure, hip and knee implants. We also consider equipment such as patient lifts, bigger beds and wider ambulance doors.
Food – We position companies on their efforts to access the $663 billion “health and wellness” market, as well as on how they are reformulating their portfolios to respond to increasing pressure such as “fat taxes” to reduce sugar and fat levels.
Commercial Weight Loss, Diet Management & Nutrition – Up to 50 percent of some western populations pursue dieting, targeted nutrition and behavioral change making it a $4 billion market in the U.S. and growing globally.
Sports Apparel & Equipment – This is the longer-term play, but we believe that promoting physical activity will become a key priority for more government health policies.
About BofA Merrill Lynch Global Research
The BofA Merrill Lynch Global Research franchise covers more than 3,300 stocks and 880 credits globally and ranks in the top tier in many external surveys. Most recently, the group was named Top Global Research Firm of 2011 by Institutional Investor magazine; No. 1 in the 2012 Institutional Investor All-Asia survey for the second consecutive year; and No. 2 in the 2012 Institutional Investor All-China, All-Europe and All-Japan surveys. The group was also named No. 2 in the inaugural 2012 Institutional Investor Emerging Markets Equity and Fixed Income survey, covering Emerging Europe, Middle East and Africa; No. 2 in the 2011 All-Latin America and All-America Equity team surveys; and No. 3 in the 2011 Institutional Investor All-America Fixed Income and All-Brazil Research team surveys.
Additionally, BofA Merrill Lynch Global Research was named the No. 1 Global Broker by Financial Times/StarMine, as well as ranking No. 1 in the U.S. and Europe and No. 2 in Asia. The group was also named No. 1 in Asia and No. 2 in the U.S. in the Wall Street Journal Best on the Street 2012 Analysts Surveys. The group was also the winner of the Emerging Markets magazine’s EM Research Global Award for 2010 and 2011.
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