Why investors should keep an eye on waste, water, wellness and obesity
Of major importance to the food industry, these four issues are among seven long-term 'megatrends', business growth themes that will change everyone's lives in the coming years and need to be on the investor's radar screens, both from a risk and opportunity perspective, according to Bank of America Merrill Lynch.
“The obesity epidemic is the most pressing health challenge facing the world today,” says Sarbjit Nahal an equity strategist with Merrill Lynch and one of the authors on its report on thematic investing, released last month.
“There is no silver bullet, but companies are coming up with solutions in response to consumer demand and sometimes, government regulation.”
For years food companies have added heaps of salt, sugar and fat to their products, knowing they contributed to obesity. “The companies that are seen as supporting the obesity epidemic will find themselves facing similar scrutiny as the tobacco industry did,” says Nahal.
“There is a growing awareness that obesity and its ripple effect on diseases like diabetes will cost society (and in particular employers and insurers) more than smoking ever did.”
While the more cynical may prefer to invest in the likes of McDonalds, Merrill Lynch suggests investors look at companies in four specific sectors: pharmaceuticals & healthcare; food; commercial weight management and nutrition; sports apparel and equipment.
Energy efficiency is another megatrend. “It doesn’t matter whether you buy into climate change or not, we live in resource-constrained times,” he says. “Energy efficiency is becoming the central plank of energy policy worldwide and efforts to reduce the amount of energy used to provide products and services are a logical response,” he says.
Waste, water treatment
South African company Aveng is one of two ‘boom’ stocks listed by Merrill Lynch. The other is Mondi. In Aveng’s case it is the water subsidiary which delivers water treatment solution in southern Africa, South America and Australia that has attracted attention. “Of all the water in the world, just 2.5% of that is fresh water, and of that 60% is trapped in polar ice caps,” says Nahal.
Countries like China have recognised the problem and are investing heavily to ensure they can treat and reuse the water they have available. Companies that provide water treatment, and management and infrastructure and supply solutions will benefit.
Poor waste management is another global reality, with only 25% of the 11bn tons collected annually recycled or recovered. This is changing as companies recognise waste management as a business opportunity.
“The opportunities include recycling, recovery of secondary raw materials, waste-to-energy, e-waste and sustainable packaging,” says Nahal.
Mondi’s commitment to recycling has seen recovered paper become an indispensable raw material for its business. In 2012 the company consumed 1.5 million tons of recovered fibre, amounting to around one third of our total pulp consumed. The company has also developed a line of biodegradable packaging materials.
Many of these trends are here to stay – in the case of obesity for at least 25 years.
Investors need to be aware that over this time frame even companies surfing on the waves of megatrends will come and go. Keep a sharp eye on your investments, and these trends may return mega rewards, advises Nahal.