As Popularity Of Golf Wanes, Fund Managers Bet On Cycling

Forget tee time. These days, you’re more likely to hear business deals discussed over the handlebars of a high-end bicycle than on the fairway, and fund managers are catching on.

As cycling becomes the hobby of choice among wealthy professionals, portfolio managers from firms such as Wasatch, Vanguard and Franklin Templeton have been moving into the shares of companies behind bicycle and bike-component brands such as Cannondale, Specialized and Trek, whose highest-price models can cost more than $10,000.

Fund ownership of Taiwan-based Giant Manufacturing Co. Ltd, which produces its own Giant brand of bicycles and makes products for Trek and other high-end brands, leapt 10 percent last quarter, according to Morningstar data.

For Taiwan-based Merida Industry Co Ltd., which makes the Specialized line, fund ownership jumped 11 percent in the quarter, while for Dorel Industries Inc., the Canadian conglomerate behind Cannondale, it grew 6 percent.

"This is one of those trends that we're hoping to catch early on," said Jared Whatcott, an associate portfolio manager of the Wasatch International Opportunities Fund. Whatcott owns shares of Giant Manufacturing and Merida in his fund.

The trend is alluring to fund managers because of the changing demographics of cyclists. Roughly a third of riders have household incomes exceeding $100,000 a year, a rate 63 percent higher than 10 years ago, according to the National Sporting Goods Association.

Industry experts say much of that jump can be attributed to the waning popularity of golf, which still commands the highest portion of participants with household incomes above $100,000 among popular sports.

Indeed, the number of golf courses in the U.S. has declined for the past eight years, according to the National Golf Foundation. Lagging equipments sales prompted Dick's Sporting Goods Inc in July to fire all of the more than 500 PGA golf instructors that worked in its stores as consultants.

Among Whatcott's reasons for finding stocks like Giant and Merida appealing "is watching the sport expand and cyclists trading up to higher-end bikes that have higher margins," he said.