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Should investors look at ways to play the fight against obesity?
A recent demand from campaign group Action on Sugar to ban milkshakes with chocolate, sweets, cake, cream and sauce known as freakshakes, has reignited the debate on how to tackle the obesity epidemic.
With some freakshakes containing over 1,000 calories, campaigners are right to be concerned, but what do rising obesity rates mean for investors?
Berenberg analyst Asad Farid argues the diabetes epidemic is being underestimated by investors, claiming the International Diabetes Federation’s (IDF) forecasts are not high enough.
For example, IDF projections of 380m diabetes patients by 2025 were achieved 10 years earlier than expected.
Overweight people are more likely to develop diabetes with the data implying more people will become overweight and develop the condition, placing more strain on tight healthcare budgets.
The cost of diabetes treatments is staggering with global healthcare expenditure of $627bn reaching levels 20 years ahead of IDF’s previous forecasts, marking a huge disconnect between expectations and reality.
On average, 10% to 15% of total healthcare expenditure is being spent on treating and managing diabetes according to Farid.
While the diabetes epidemic is worrying, there are many ways to prevent people becoming diabetic.
WHAT IS THE READ-ACROSS TO THE STOCK MARKET?
There are numerous stocks which are relevant to this theme although any references in this article are purely to flag relevant names rather than us presenting investment ideas.
You would need to do your own research on each stock and consider aspects like valuation, market position and financial strength rather than simply picking them because they play into a certain theme.
Keeping active is one of the best ways to avoid becoming diabetic and generally improve overall wellbeing, although time and cost can act as a deterrent.
The UK’s second-largest budget gym operator The Gym Group (GYM) is expected to continue opening new sites despite intense competition. Its shares have risen by 55% in the past 12 months.
‘Physical inactivity in the adult population has been on the rise globally, with North America being the only region where activity levels have improved. We expect that governments globally will strive to increase physical activity, which will drive the penetration rates of gyms,’ says Farid.
He believes there will be greater tax incentives on gym membership in the US and Europe. It sees continued growth in affordable budget gyms and boutique clubs, specialising in one to two health activities such as yoga and cycling. He also predicts an increasing number of health insurers and employers subsidising gym membership to reduce healthcare costs.
An alternative to working up a sweat is to cut down on high sugar content that lurks in everyday products such as yogurts and pasta sauce, as well as sweets and chocolate.
The UK Government recently imposed a sugar tax, forcing companies to pay tax if their products exceed a specified amount of sugar. That is expected to encourage companies to seek healthier alternatives.
Examples of London-listed companies relevant to this theme include PureCircle (PURE) which produces stevia sweeteners for a range of products, including soft drinks, breakfast cereals and sauces. Stevia is a naturally-sourced sugar substitute which has no calories.
There is also Kerry Group (KYGA) which manufactures ingredients and solutions for the food and beverage sectors. ‘It could help companies create new products and reformulate old ones with less sugar and using natural ingredients,’ says Farid.
THE HEALTHCARE ANGLE
In the healthcare space, companies developing glucose monitoring systems may prosper by enabling people to monitor their glucose levels and avoid dangerous complications from diabetes. The Berenberg analyst argues that companies with a diabetes treatment will not necessarily succeed, flagging that sales of basal insulin and generic products may struggle against more innovative products.
Other issues to consider include the risk of broadcasting companies losing out on advertising income if restrictions on advertising unhealthy food are tightened. For example, fried chicken chain KFC and breakfast cereal colossus Kellogg’s both recently fell afoul of advertising rules for high fat, sugar or salt products and were told to remove adverts by the UK watchdog.
The topic of obesity is central to a US-listed exchange-traded fund called Janus Obesity ETF. It tracks the performance of the Solactive Obesity Index which contains a basket of stocks that play into this theme. Holdings include pharmaceutical group Novo Nordisk, medical implant devices manufacturer Abiomed, kidney healthcare specialist DaVita and weight loss expert Weight Watchers.
Janus Obesity ETF has risen by 38% in share price terms over the past year versus just under a 10% gain from its benchmark, the MSCI All-Country World index. (LMJ/DC)
Other sectors at risk
BEER: It is feasible to predict calorie labelling of beers in the future, which could potentially trigger a shift in consumer appetite towards lower-calorie products.
SOFT DRINKS: Consumption is falling and sugar taxes are being rolled out in various parts of the world.