Investing in health and wellness

Increasing emphasis on physical and mental health may create opportunities for investors.

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Key takeaways

  • Increasing attention is being paid worldwide to the challenges of maintaining mental and physical health.
  • Long-term trends suggest the demand for health and wellness support is likely to continue growing well into the future.
  • Stocks of companies that help meet this demand may offer opportunities for investors to do well while also doing good.

COVID and the restrictions placed on normal life in many places in response to the virus have worsened the mental and physical health of millions of people. Those restrictions have disrupted everything from exercise routines, to the availability of care for medical conditions, to the face-to-face interactions between people that are necessary for good mental health. These pandemic-related hindrances to health came at a time when the physical and mental health of many Americans was already deteriorating.

Despite spending more on health than any other country, life expectancy in the US had begun to decline by the middle of the past decade. In 2015, Princeton economists Anne Case and Angus Deaton published a paper showing that working-age men and women without 4-year college degrees were dying "deaths of despair" from suicide, drug overdoses, and alcohol-related liver disease at unprecedented rates. In 2017 alone, 158,000 Americans died of these causes, which Case and Deaton compared to "3 fully-loaded Boeing 737s falling out of the sky every day for a year."

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The rise of deaths of despair among marginalized lower-income and less-educated people starkly illustrates the consequences of neglecting physical and mental health. While there is no vaccine for this epidemic, there is an increasing recognition by people, governments, and companies alike of the importance of improving individuals' physical and mental health.

Paul McElroy, co-portfolio manager of the new Fidelity® Healthy Future Fund (FAPHX) says, "People have been increasing their focus on well-being for a long time, and COVID accelerated the theme." That increased focus is increasing demand for products and services that support physical, mental, and social well-being and it is also creating investment opportunities among companies that provide them.

Trends driving health and wellness

McElroy and co-manager Melissa Reilly believe long-term trends suggest the demand for health and wellness support is likely to continue growing well into the future. Those trends include:

More young consumers

Consumers ages 16 to 40 tell surveys that they intend to prioritize health and wellness in the coming years. As those between 16 and 25 enter the workforce, they will likely have more money to spend on wellness-related products and services.

More old consumers

Cancer, heart disease, infectious disease, malnutrition, and poor air quality have increased around the world in recent years, heightening the need for innovative and potentially disruptive preventive health solutions. The aging of the populations of many developed countries makes addressing these risks more urgent. That could potentially mean increased demand for health care innovations for decades to come.

More mental illness

Increasing concern about mental health is fueling interest in products and services that promote mental health resilience and emotional well-being. Anxiety and depressive disorders worldwide rose more than 25% during the pandemic's first year alone, according to the World Health Organization. Rates of suicide have nearly doubled in some areas of China where severe COVID-related restrictions have been imposed. The US Surgeon General has also called mental health an urgent public health issue.

These 3 trends and others are expected to generate strong long-term growth in the health and wellness market. The Global Wellness Institute predicts a 10% compound annual growth rate, bringing it from $4.4 trillion in 2020 to $7.1 trillion in 2025.

The health and wellness market is poised to grow

Investing in health and wellness

Reilly and McElroy look for opportunities in companies that seek to address one of 3 specific needs.

Extending and improving life expectancy

These companies' products are intended to help improve physical health and fight disease, particularly preventable conditions. Thermo Fisher Scientific (TMO) is the world’s largest provider of instruments and services used in life science research and drug development. Reilly and McElroy believe the company’s earnings growth may continue to outpace the overall industry. It is a leader in cell and gene therapy products and has a proven strategy of using mergers and acquisitions that have helped it to expand into new markets. Thermo Fisher invests in global health equality and partners with agencies to address public health concerns in areas such as infectious disease. It has committed to emissions reductions aligned with the Paris Agreement in the medium and long term, and to incorporating sustainability principles into its product design. The company’s stock has traded at price-to-earnings ratios (P/Es) between the mid-20s and mid-30s over the past year, based on forward earnings. “We believe that valuation is very reasonable given the company’s growth trajectory potential,” Reilly says.

Enhancing health and wellness in people’s lives

These companies' products and services can help people improve their mental health. Numerous studies note a relationship between financial vulnerability and mental illness. Companies in the advisory, asset management, and insurance industries have opportunities to support mental well-being by helping provide financial security.

One example is AIA Group, one of the largest life insurers in the world. Its revenue comes from selling supplemental insurance and long-term savings products in the Asia/Pacific region. “The company has helped millions of people live healthier, longer, and better lives across Asia,” Reilly notes. Reilly and McElroy believe household income growth in the company’s key markets should help boost demand and increase market share for AIA Group’s products and services.

Benefiting the environment

These companies' products help lower carbon emissions which can impact human health. NVIDIA (NVDA) designs and manufactures chips, systems, and software for a wide variety of uses. The company’s systems and software platform are used in electric and autonomous vehicles which require high-performance computing. NVIDIA supplies 20 of the largest 30 electric vehicle manufacturers and estimates its revenue from cars and trucks will grow from $8 billion last year to $11 billion over the next 6 years. NVIDIA stock tends to trade at a higher valuation than its peers, but Reilly and McElroy think the market undervalues its growth potential and competitive position.

These are just a few examples. Other companies also are rethinking what they do and how they do it to align better with consumers’ increasing focus on health and wellness. This change may open a valuable new path for investors looking to support enterprises that help people worldwide live healthier lives while also meeting their investing goals.

Fidelity® Healthy Future Fund held securities mentioned in this article as of its most recent holdings disclosure. For specific fund information, including holdings, please click on the fund trading symbols above.

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