Boris Radondy, manager of the DNCA Global Sport Equity fund, expects strong growth in the sports sector over the next few years and believes it can present predictable long-term growth.
DNCA Finance’s integration of Ostrum Asset Management in October 2020 added a team of 21 people and 7 billion euro in assets under management, mainly in equity and convertible bond management.
This additional capacity led to the launch of several thematic funds in 2021, which were recently launched on the Belgian market, such as DNCA Invest Euro Smart Cities and DNCA Global Sport Equity. InvestmentOfficer.be recently had the opportunity to speak with Boris Radondy, manager of the latter sport equity fund, about growth opportunities in markets closely or remotely related to sport.
Growth factors
“We noted that the sports sector had grown significantly worldwide,” said Radondy. “We also realised that there were many growth factors in the various sub sectors, with the number of people playing sports expected to increase by 30 percent by 2025 (compared to 2020) to 3.5 billion people.”
The sports equipment segment, he pointed out, is expected to grow by 8 percent over the next five years.
“In addition, new niches are emerging, such as those that seek to integrate certain forms of digitalisation into sports, or in the use of video and data analysis within professional teams.”
Radondy said he also has included the theme of e-sports in his portfolio, which should benefit from the return of major events related to video games competitions.
Thematic focus
The investment universe still consists of a large number of unlisted companies, but there are already 300 listed companies in the segment, with a market capitalisation of 2.5 trillion dollars. This means that the investment strategy is already sufficiently diversified. “For example, we had about 10 IPOs in our universe by 2021.”
The management philosophy is to invest as purely in this segment as possible, with a minimum of 50 percent of sales coming from the sports sector, in order to gain maximum benefit from the growth these activities generate. “We look for local or international leaders in their segment, financially strong companies and attractive valuations relative to their expected revenue growth.”
Trends
DNCA Global Sport Equity invests predominantly in two main trends: sports activities, which includes equipment, apparel, sports complexes, health and wellness, and professional sports, such as teams, events and e-sports.
“The first major group represents about 75 percent of our assets under management, and it is clear where we see the most opportunity in the coming years, with very predictable growth.”
Since the start of the year, the fund has fallen 15 percent, broadly in line with the major international indices. “The product mix is quite heavily overweight in consumer sectors,” said Radondy, “but we remain largely convinced about the prospects of the sports economy compared to the rest of the economy. Since the beginning of 2022, we have increased our weighting of the largest convictions to anticipate a price recovery.”
Since the end of June, the fund’s net asset value has increased by more than 10 percent.
Strong convictions
The largest position in the portfolio is Puma, accounting for more than 4 percent of invested assets. “In our opinion, the company is under-represented in the US and China, with a market share that does not yet represent the brand’s normal level, which has been confirmed by growth of more than 20 percent in these two markets in recent years. Moreover, the group has no debts.”
He also points to the favourable prospects of the Xponential Fitness group, which also has a weighting of more than 4 percent in the portfolio, a company that has several franchise networks in the United States, specialising in ten different concepts previously positioned at the upper end of the market, including pilates, fitness, cardio, boxing. “The concept is also being rolled out internationally.”
Other stocks include Electronic Arts (e-sports), Shimano (bicycles), Callaway Golf, JD Sports (sports retail networks), Skechers (sports shoes), Vail Resorts (high-end ski resorts), Garmin (high-end sports watches) and BRP (world leader in jet skis and snowmobiles). The ten largest positions in the portfolio represent about 35 percent of the assets under management.
“The logic is to be sufficiently diversified across all segments available in the market, with around 40 positions and a long-term focus on small- and mid-caps and the US market, where most investment opportunities lie in the sports sector.”
Track record DNCA Global Sport Equity fund:
- YTD as of 22/8/2022: -13.1%
- Return since inception: -2.8%
- Return 2021: +10.5%
- Volatility 1 year: 20.5 percent
This article originally appeared on InvestmentOfficer.be.