Societal changes mean sportswear companies can play a strong role in income portfolios, according to Ben Peters, who runs the £1.2bn Evenlode Global Equity Income fund.
Peters told FT Adviser Vantage Point: “There is obviously a much greater focus on health and wellness now than might have been the case in the past, and the other thing which has changed is that people want the best kit when they are exercising. A few years ago, the notion that a recreational cyclist would spent £2,000 on a bicycle for example, would have seemed ludicrous, but many do that now.”
With that in mind, he has instigated an investment in Shimano, a cycling company.
Peters said: “We entered a position in Shimano in early 2023, with it having been in our investable universe since 2018. The pandemic was turbulent for Shimano and had some knock-on effects. Initially, lockdowns saw a pullback in consumer activity in cycling, which was quickly followed by unprecedented demand. The pandemic demand caused bicycle manufacturers to rapidly increase production and led to excess inventories across the industry, which are only now starting to unwind. On a recent call with the company, we learned that inventories are expected to be back to more normal levels by the end of the current year. The inventory backlog caused a drop-off in the stellar performance seen through the pandemic, and the share price fell in line with that. We took the opportunity to take a position at an attractive valuation, albeit with a conservative position size to reflect cyclical risks (pun intended) and the fact that it operates essentially in one niche. In 2024 the share price of Shimano has been positive and in contrast to the other sporting names discussed here, a catalyst for that performance has derived from better-than-expected sales in China.”
But he is more wary around the impact the changes will have on some of the more established businesses in the sector, notably Nike and Adidas.
Of Nike he said: “Challenger brands have certainly come in to their market, and they have made some strategic changes which have not worked. Distribution of products is critical to a global sportswear company, getting to the end touch point with customers and is an area where Nike perhaps over-innovated. The last five years saw Nike reduce focus on wholesale distribution, favouring direct-to-consumer digital channels. On the face of it, that makes sense since Nike can then capture a greater share of the economics of selling their own products, built on the fact that they are the biggest sportswear brand out there. However, they did it by cutting what they term ‘non-differentiated retail’, which in plain English means smaller speciality sports stores. The issue is that those are the places where running enthusiasts go for advice, gait analysis and to try on new products. Nike left a space where challenger brands were happy to land and expand, meaning that now, according to some estimates, Nike have essentially zero share in speciality running.”
