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16 Jul, 2012

Efforts to Tackle Global Obesity Shaping a New Investment Megatrend


NEW YORK & LONDON–(BUSINESS WIRE)–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 and Healthcare; Food; Commercial Weight Loss, Diet Management and Nutrition; and Sports Apparel and 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 and 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 and 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 and Equipment – This is the longer-term play, but we believe that promoting physical activity will become a key priority for more government health policies.