Bank of America Merrill Lynch has identified a group of over 50 stocks which it believes will benefit from an investment “megatrend” over the next 25-30 years: the rise in obesity globally and the measures needed to tackle it.

Bank of America Merrill Lynch has identified a group of over 50 stocks which it believes will benefit from an investment “megatrend” over the next 25-30 years: the rise in obesity globally and the measures needed to tackle it.

Globally, 500 million people are obese and 1.4 billion are overweight, the bank says, and this is now the fifth leading cause of death, causing 2.8 million fatalities each year. Looking at how this trend has grown, worldwide prevalence of obesity doubled between 1980 and 2008, according to the World Health Organization. The organization anticipates that by 2030, 65 million additional Americans will be obese if current trends continue.

Meanwhile, the costs of managing obesity are “much greater than previously believed,” the report, Globesity - The Global Fight Against Obesity, says. It identifies a “Global Fighting Obesity Exposure Stocklist-50+,” focused on areas where it believes investors should take a long-term view in selecting stocks, as part of the “globesity” theme.

The concept of “megatrends” alludes to long-term structural changes in the world economy that may cause long-term trends in the prices of certain factors of production needed to address such changes. For example, some investors believe the growth of the middle class in emerging economies constitutes a megatrend in farmland, food and other commodity prices.  

“Global obesity is a mega-investment theme for the next 25 years and beyond,” said Sarbjit Nahal, equity strategist at Merrill Lynch Global Research. “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.”

According to analysts at the firm, the four key investment areas are:

- Pharmaceuticals and healthcare: Companies taking advantage of the US Food and Drug Administration’s increased support for obesity drug development will benefit from this trend, the bank says. Companies tackling related medical conditions and needs including diabetes, kidney failure and hip and knee implants are also part of this, as are those making equipment such as patient lifts, bigger beds and wider ambulance doors.

- Food: The bank positions companies on their efforts to access the $663 billion “health and wellness” market, in addition to “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: The bank estimates that up to 50 per cent of some western populations pursue dieting, targeted nutrition and behavioral change - a $4 billion market in the US and growing globally.

- Sports apparel and equipment: This is the “longer-term play,” but the bank believes that promoting physical activity will become a “key priority for more government health policies.”

Growing costs and tighter regulations

“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 said.

In May the US Institute of Medicine estimated that the annual cost of obesity-related illness in the US is over $190 billion – a figure which accounts for 21 per cent of annual medical spending. However, previous studies estimated this figure at 10 per cent.

BofA notes that medical costs for treating obese patients are 40 per cent higher than for non-obese patients. Specifically, obesity adds 50 per cent to annual medical costs, while smoking adds 20 per cent.

“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,” it said.