“Cause right now, I see clearer than most
I sit here contending with this cheese on toast”

Roots Manuva

On 12 July 2018, the ‘Ways and Means’ US tax writing committee passed a bill 28-7 that would allow the cost of gym memberships and exercise equipment to be treated as a medical expense, paid for with an HSA (Health Savings Account). A few days later it received further bi-partisan support in the House of Representatives where it passed 277-142. It now awaits final confirmation from the Senate to become law. The Personal Health Investment Today (PHIT) Act not only demonstrates that some politicians have a sense of humour but will also allow individuals to spend up to $500 a year on fitness-related expenses. This interests us on a number of levels……

An ounce of prevention
Firstly, we are all about prevention over cure (see An ounce of prevention) and with Health & Wellbeing as one of our sustainability pillars, we think about this a lot. I think the PHIT act is a surprisingly forward thinking policy which links back to the broader theme of health economics and value-based care (see Human Life: Cost-benefit). Improving population health through exercise and diet is the front line of prevention and can have meaningful positive second-order impacts.


Source: Planet Fitness

Lean business models
Secondly, we already find the evolving wellness sector (particularly gyms and gym equipment) interesting from an investment perspective due to positive trends globally and the emergence of some listed business models that are capturing high investment returns from this growth. We see gyms as both protected from internet disruption on the one hand (you can’t buy a six pack online…. although some do try Seven Minute Abs), whilst also benefiting from it on the other (lower rents and better locations).

Fitness industry could receive a legal stimulant
Thirdly, this bill would provide a legal stimulant to an industry that is already growing at a healthy rate. The number of US gym memberships increased from 33 million to 57 million between 2000 and 2016 and it’s estimated that this rate of growth will increase in the coming years. There are approximately 25m HSA accounts covering roughly 50m adult Americans. We like no-frills gym business models which offer monthly memberships for $10-25 per month (or $120-$300 per year), expanding gym access to a lower income demographic. With such memberships entirely funded via the $500 tax break we would expect increased adoption and membership retention if it passes. It is also likely to have an indirect impact on companies that service (e.g. software) and equip (e.g. strength and cardio machines) these gyms.

‘Golf is not a sport’ say politicians
Finally, we should all spare a thought for the beleaguered top 1% of the income distribution. These poor souls were again left reeling as it was revealed that golf, hunting, sailing and horse riding are not sporty enough to qualify for the tax break.

About the author

Craig Bonthron is an investment manager in the Equities team, responsible for co-managing global equities portfolios. He joined us in 2014 from SWIP, where he was investment director in global equities. In addition Craig also had analysis responsibilities for the tech, energy and utility sectors. Prior to SWIP, he was a portfolio manager at Kleinwort Benson Investors, a member of the global environmental equity team. Craig has a 1st Class honours degree in Building Surveying, an MSc with Distinction in Business Information Technology Systems from Strathclyde Business School. He has 17 years’ industry experience (as at 30 June 2018).

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