as it may be, fear sells
Some see companies preying on insecurity; others cite innovation.
It sometimes seems that the more wealth a society creates, the
more insecure it becomes. Companies are preying on our anxiety about
natural disasters and pandemics and obesity and terrorism to sell
a growing range of products and services. Are these fear entrepreneurs
cynical self-promoters, or ideal investments for uncertain times?
Probably a little of both.
Frank Furedi, a professor of sociology at the University of Kent
and the author of the books "Politics of Fear," "Culture
of Fear" and "Paranoid Parenting," says that business
leaders are extremely talented at harnessing anxiety to sell products
- even when our perception of fear bears little relationship to
For example, even as politicians proclaim that crime rates are
falling, the market for household alarms and personal security gizmos
Consider child-tracking devices, the latest hot products in the
security business. Sprint-Nextel and Verizon have come up with products
that let parents track a child's mobile phone for as little as $10
a month. If that sounds over-the-top, high-tech Halloween costumes,
with tracking devices that allow parents to keep track of their
little trick-or-treaters, were on sale this autumn at Angels Fancy
Dress in London for £500, or $945, apiece.
That, Furedi said, is nothing but marketing. "There is no
evidence to suggest that the incidence of child abductions is any
greater today than, say, 40 years ago," he said. "But
parents are being encouraged to fork out large sums of money for
peace of mind."
Experienced investors will recognize the link between fear - and
its counterpart, greed - in explaining and understanding stock market
"One reason why stock markets display such a strong average
growth is greed," said Frank Westerhoff, a professor of economics
at the University of Osnabrück in Germany. "People want
to participate in this game, and as they do, they drive prices up.
Eventually some traders realize that markets are extremely overvalued.
When the markets start to correct, a fear-driven panic sets in,
pushing prices down or even crashing the market."
Yet where experts like Furedi and Westerhoff see misplaced anxiety
and manipulation, others see innovation and gain.
The insurance industry, for example, is often criticized for making
big money by exploiting fear. But Mark Stacpoole, an investment
director for Hiscox Insurance fund in London, pointed out that the
insurance industry is characterized by fierce competition that has
resulted in many policyholders getting a better deal.
"Young males tend to pay higher motor insurance premiums than
any other class of driver because statistics show that they are
more likely to drink and drive late in the evening, when most accidents
occur," Stacpoole said. So Aviva Insurance, a British company,
has introduced a new plan that bases premiums on the time of day
policyholders use their cars. Drivers are monitored using a global
positioning satellite system and charged accordingly: the earlier
in the day the car is driven, the cheaper the premium.
Innovation in insurance underwriting, Stacpoole said, has become
one of the main drivers of an insurance company's stock price.
"It is no coincidence that Progressive Insurance - one of
the first auto insurers in the United States to base premiums on
factors other than age and gender - has seen its stock price rise
800 percent over the last 25 years," he said. Stacpoole's fund
holds shares of both Progressive and Aviva.
Not surprisingly, Furedi and other skeptics reserve their harshest
criticism for military contractors. Love defense stocks or loathe
them, there is no question that industry fundamentals have seldom
looked perkier. Scott Sacknoff, manager of the Spade defense index,
a benchmark that tracks about 50 companies in the military and security
sectors, noted that defense budgets were robust and corporate activity
within the sector was increasing.
The Spade index, started in 2004 by the International Space Business
Council, a clearinghouse for information on the aerospace and military
industries, has been trading at historic highs recently, prompting
some analysts to speculate that the military spending cycle may
have peaked. But Sacknoff said that the upward trend was sustainable.
He predicted that U.S. spending on homeland security would increase
by around $2 billion a year into 2009.
According to a report released in August by Heavy Reading Enterprise,
more than half of the 200 small and midsize U.S. enterprises surveyed
indicated that they planned to increase spending on homeland security
products and services over the next three years. Analysts said that
investors would focus on experience and market leadership when choosing
the companies to back - and that the perceived leaders in the field
of security technology, were old, familiar names, including Cisco
Systems, Symantec, VeriSign, McAfee, Oracle and Microsoft.
While many investors hold stocks of military contractors for diversification
purposes - the sector is not strongly correlated with the broader
market - others use them as a hedge against geopolitical turbulence.
"In times of uncertainty all stocks tend to suffer, but stocks
focused on homeland security and defense invariably bounce back
quicker," Sacknoff said.
It is easy to be cynical and dismiss the activities of fear entrepreneurs
as disingenuous, but some industries have become the hapless victims
of our fears. For example, health care and biotechnology companies
have helped create a situation in which people live longer, yet
the same industries are widely mistrusted by consumers, Furedi said.
"New drugs are being developed to help us fight disease, yet
fear of potential side effects are preventing us from embracing
some of them," he said.
Health care and biotechnology stocks are volatile because they
react quickly to negative news. But Nora Frey, an investment director
at Adamant Biomedical Investment, said that investors would not
be easily discouraged by the ups and downs because of the potential
for major breakthroughs in cures for diseases like cancer and HIV.
Adamant Biomedical has recently been appointed by Syz, a Basel-based
investment management firm, to manage a new fund, the Oyster Oncology
Fund, that will focus on cancer diagnostics and treatment. Syz estimated
that the market for cancer treatments would grow at an annual rate
of more than 10 percent over the next five years, to reach a 12
percent share of the global pharmaceutical industry market.
"Substantial progress has been made in understanding and treating
the disease, and there have been numerous exciting advances in the
past year, such as in breast, cervical and kidney cancers,"
Frey said. "We are expecting many more interesting and promising
drugs to come to the market in the next five years."
The Oyster Oncology Fund currently holds Roche Pharmaceuticals,
which derives 75 percent of its revenue from cancer treatments,
and several biotechnology companies, including Genentech, Amgen,
Exilixis, Genprobe and Genmap. The last, a Danish company, is rumored
to be a potential takeover candidate, Frey said.
Frey's other biotechnology picks include Panacea Biotech, a profitable
company listed in India that focuses on vaccines, and Bionomics,
an Australian company that focuses on treatments for cancer and
multiple sclerosis. She also holds a number of hospital stocks,
like Parkway Holdings in Singapore and Network Healthcare Holdings
in South Africa, which both stand to benefit from increased government
spending on health care infrastructure, she said.
Gordon Elvey, manager of JO Hambro's US
Opportunities Fund in London, has increased the fund's health care
holdings in recent months.
"Health care is one of the few sectors in the U.S. where growth
looks assured," he said.
"We also expect corporate activity to pick up next year as
midsize pharmaceutical companies come under pressure to expand the
diagnostics side of their business."
Elvey's main stock pick is Cubist, a U.S. biotech company that
plans to introduce early next year a medicine for the MRSA antibiotic-resistant
"superbug" staph infection. Novartis, which has the rights
to sell the vaccine in Europe, has been mentioned as a potential
acquirer of Cubist - another reason, according to Elvey, to buy
the stock without fear.
published in the International Herald Tribune, 17 November