Efforts to Tackle Global Obesity Shaping a New Investment Megatrend, Says New BofA Merrill Lynch Report

  Efforts to Tackle Global Obesity Shaping a New Investment Megatrend, Says
  New BofA Merrill Lynch Report

    Analysis Pinpoints Sectors and Companies Developing Obesity Solutions

Business Wire

NEW YORK & LONDON -- July 16, 2012

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.

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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