This is part of a series of articles in association with Liontrust highlighting the companies that are contributing to a cleaner, healthier and safer world, while aiming to generate strong, long-term profits for investors.
Amazing advances in medicine have vastly increased life expectancy around the world but a consequence of this is that many people are living longer with chronic illnesses like Type 2 diabetes or heart disease.
Many of these ‘non-communicable’ conditions are caused by lifestyles incompatible with a healthy existence, eating calorific food and not engaging in enough physical activity. Causes of this are numerous but largely centre around our increasingly ‘obesogenic environment’: what this means in practice is a decrease in ‘active transport’ (walking or biking, although Covid-19 is bringing about change), increased use of IT/sedentary behaviour-promoting devices, and little focus on physical activity in urban planning, work and school situations.
As a species that has spent 90 per cent of its existence as hunter gatherers, homo sapiens are simply not designed to spend their lives sitting at desks all day and eating processed burgers. Looking to address this, the UN’s Sustainable Development Goal 3 has set a target of reducing premature mortality from non-communicable diseases by a third. Covid-19 has also turbo-charged trends already in place, with underlying health conditions and obesity linked with higher mortality rates from the virus.
Focus on our healthcare system
Given such an urgent backdrop, we would expect to see greater focus on our healthcare system and a renewed effort from society and governments to tackle unhealthy lifestyles – and the UK has already begun its own obesity crackdown in recent months. One statistic that reveals the scale of the problem is that, globally, the number of obese people has tripled over the last 40 years – with more than 1.9 billion adults now considered overweight.
Several of our sustainable themes have their roots in such worrying data but we use this to sharpen our focus on companies looking to help improve such statistics – making the world cleaner, healthier and safer and generating strong long-term returns while doing so. In this particular area, we focus on two themes, Delivering healthier foods, looking at companies innovating on the nutrition side, and Enabling healthier lifestyles, which involves businesses helping people get more active.
Taking the food and drink side first, a range of studies has highlighted the high calorific content of modern diets and health officials in the UK have called for a 20 per cent cut to calories in our food products by 2024. This will require major changes in many of the brands we know and love, and reformulation is key here as consumers demand healthier and more natural ingredients but with the same taste and value for money.
The three ‘R’s
This balance is hard to achieve, which makes the success of our long-term holding Kerry Group all the more impressive. This Irish company focuses on what it calls the ‘Three Rs’, reducing, removing and replacing unhealthy or unnatural ingredients in food and drink without compromising on taste or cost.
Major companies like Unilever, another holding in our funds, also continue to move their portfolios towards more natural and healthy products. It recently completed the acquisition of the Horlicks brand from GSK and, as further evidence of this focus, announced the acquisition of California-based electrolyte drink producer Liquid I.V. in September.
A separate but equally important part of the food theme lies in the emissions profile of the farming industry, with methane (produced by cow rumination) a greenhouse gas 30 times more powerful than carbon dioxide. This means every one of the 1.5 billion cows on earth – one per five people – heats it as much every year as the CO2 produced by burning 600 litres of petrol.
Figures from nutrition.org.uk show that for the average UK adult, the majority of their protein (64 per cent) comes from meat, fish and dairy. Yet, food and farming are responsible for 25 per cent of total global emissions and the livestock industry, primarily meat and dairy, makes up a significant share of this. Something clearly has to change in the decades ahead and responding to this situation, a group of scientists has called for governments in all but the world’s poorest countries to set a date for ‘peak meat’, beyond which livestock production will no longer increase.
Delivering healthier foods
A recent report from think tank RethinkX, however, claims we are on the cusp of the biggest change in food and agricultural production since the first domestication of plants and animals 10,000 years ago – and the driving force of this is what is known as protein disruption, moving to plant-based alternatives. The crucial factor for our theme of ‘Delivering healthier foods’ is that these alternative proteins are expected to be more nutritious, healthier, better tasting and more convenient than what most people are currently getting from animals, and the area of meat alternatives is likely to be a key one in future.
Moving to the exercise side, gyms are an obvious investment option given the trend towards healthier lifestyles, offering the infrastructure for physical activity in exchange for a membership fee. To put some figures on this, the global gym and health club market was worth slightly more than $87 billion (£66 billion) in 2018 and has grown every year since 2008.
A growing desire to exercise more
Covid-19 lockdowns around the world have clearly affected this market and any return to ‘normality’ will be slow with social distancing still in place; gyms may be facing a protracted period of lower footfall in addition to higher costs as they deep clean every day. But we continue to believe the desire to exercise more will persist and if we are facing a recessionary environment, lower-cost gyms, taking a smaller share of household spend, will be clear beneficiaries.
Within the gym space, a key structural shift has been in the rise of low-cost 24-hour operators witnessed in the US, UK and Europe – a classic disruption story. Many such gyms first sprung up in the depths of the financial crisis in 2007-08, offering no-frills flexible membership at less than half the price of traditional names.
When we initially worked on this theme, we said the market was ripe for disruption as low-cost providers undercut expensive incumbents. Post-Covid, we still believe this to be the case, although it will be the well-established low-cost players taking market share rather than a swarm of new entrants and, in the UK, this means names such as The Gym Group, which we hold in our funds.
A cleaner and safer world
Much of our thinking focuses on a cleaner and safer world in the future but a third goal requires people to be healthy enough to enjoy this. With a fifth of the world’s population expected to be overweight or obese by 2025, and related diseases impacting both life satisfaction and expectancy, these are issues we have to confront. The response to the pandemic shows how the world can overcome challenges through co-operation, applying ingenuity to positive ends, and there are obvious parallels with the obesity epidemic.
For the Sustainable Future funds, we will continue to focus on companies working to reverse the world’s Obesogenic environment, whether through improving diets or lifestyles in general – and, as with many of our themes, we would expect to see efforts on this front accelerate in the post Covid-19 world. For a comprehensive list of common financial words and terms, see our glossary.
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by the Financial Conduct Authority (FRN 518165) to undertake regulated investment business. This document should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, faxed, reproduced, divulged or distributed, in whole or in part, without the express written consent of Liontrust. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.
