Investing in sports and behavioral finance?

Mar 21, 2022

Redacción Mapfre

Redacción Mapfre

Sports are probably the most overlooked thematic investment globally. In the catalog of different fund managers, we find funds specialized in robotization, artificial intelligence, population pyramids, etc., but not a trace of sports. This reality is curious, since the sector has both characteristics that generally attract investors (medium-term visibility, ease of business understanding, and competitive advantages) and clear tailwinds for the coming years.

We are also living at a time when socially responsible investments are gaining more and more weight. Without a doubt, sports stand for inclusion, values, solidarity, care for the environment, etc., and, in recent years, they also reflect an interesting improvement in corporate governance standards.

So why aren’t more investors taking positions in sports-related companies? Perhaps behavioral economics offers a good explanation. As many of you may already know, this is the branch of economic science that incorporates teachings and concepts from psychology to better understand how humans make decisions.

An essential tool in behavioral economics is the study of our behavioral biases. Some of them may help us understand the absence of sports in the investment world. Herd mentality bias, for example, encourages us to follow the mainstream opinion and makes it difficult for us to break away. Why should I invest in sports if no one else is doing it? Availability bias, whereby we place more weight to more readily available information, does not help either. Cold, hard numbers reflecting an improvement in the sector are quickly buried by any sensationalist headline about a single company.

In general, it is difficult for human beings to change their opinion on any one aspect. However, stories of change sometimes offer good investment opportunities. Unfortunately, our brain works the opposite way: the closer our connection to a certain situation, the more difficult it is for us to see it in a different light. Perhaps that explains why, given the improvement in the fundamentals of the sports sector in Europe and its striking undervaluation compared to the US, the first investors who have begun to take positions have not been local investors, but investors on the other side of the Atlantic. Will we see a change in the trend?

Luis García, fund manager at MAPFRE AM

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