The Antelope Valley is half a world away from the roaring engines of Formula One Grand Prix auto races in exotic locales such as Monaco, Barcelona, Singapore and Abu Dhabi. But the High Desert city of Lancaster is home to the one mutual fund where fans of Formula One can invest their money in companies that sponsor and support the professional racing series. The Grand Prix Investors Fund is the creation of John Foti, a finance professional with 35 years of experience who has been following Formula One for just as long. The fund sets itself apart from the 14,000 other funds on the market by investing specifically in companies that sponsor, supply or in other ways support Formula One. “No one has ever started a mutual fund that was related just to the companies that surround a particular sport,” the 62-year-old Foti said. “Because so much money is required in Formula One, it was a natural fit.” The fund has assets of less than $10 million. Foti said it turns an average annual return between 8 percent and 10 percent. Initial investments start as low as $500 if connected with an individual retirement account. Stocks held by the fund include shares of automakers Ferrari S. p. A., Nissan Motor Co. Ltd., and Tata Motors Ltd.; aerospace and defense giant Boeing Co.; financial services company Visa Inc.; and European-based consumer goods company Unilever N.V. Because his investors are also fans of F1, Foti said the companies in the fund are familiar to them. “The nice thing about this is that you know and understand what you are investing in,” Foti said. “That’s a big deal with people.” There’s no doubt Foti’s fund is rare. Lloyd Greif, chief executive at downtown Los Angeles investment bank Greif & Co., said that he had never heard of a mutual fund as specialized as Grand Prix. With such a finite number of companies to invest in, it is not a fund for the faint of heart, he added. “Hang on to your seatbelt and make sure you are wearing a crash helmet if you invest in this,” Greif said. Jeff Sarti, a co-president at Morton Capital Management in Calabasas, had also not heard of a mutual fund as specific as Grand Prix Investors. However, there’s nothing wrong with investors following their passion when it comes to where they put their money, whether it is in socially responsible ventures or Formula One. “There is more reason to invest than just returns,” said Sarti, who serves on Morton’s investment committee. The more specific a fund, however, the more risk involved, as it can be more volatile than the market at large. It is a mistake to think just because a fund has a lot of companies in it that there is diversification, Sarti said. “The rules do not hold with sector specific (funds) because the companies can move in step with each other,” he added. Racing passion Formula One is more popular in Europe, the Middle East and Asia than in the United States. Licensing out of the rights to the race series and promotion of the races falls to the privately-held Formula One Group, three companies owned collectively by large investment firms and individual investors. Formula One makes its money from fees for hosting races, sponsorships, merchandising and TV rights. For example, a story from the BBC in 2014 reported that Singapore paid $65 million that year to bring a grand prix race to the city state. The race series had revenue of about $1.6 billion in 2013, with about $700 million distributed to the teams, the BBC report said. Typical investors in the Grand Prix Investors Fund are high net worth individuals with an interest in F1 racing. They travel around the world to attend races, own expensive vehicles and are tech savvy, Foti explained. They attend fancy parties around the pool with champagne and are not at all like the beer-drinking, RV crowd found at Nascar races. An investment connection with Formula One, however, is not an act of vanity on the investor’s part. They fully expect to see a decent return, Foti said. The investing strategy Foti takes is to go after both growth and value companies. Foti described value companies as those with stock that is a bit beat up and has a relatively low price. An example would be Boeing, whose stock price closed at $127.39 as of May 20, a 13 percent drop from where it had been a year earlier on that date. Why does the fund invest in Boeing? That company began its F1 connection in 2004 with an advanced design and manufacturing partnership with the Renault team. The aerospace manufacturer remains a sponsor of Renault. Boeing stock is not doing well because of weakness in the commercial jet market and strong competition from French manufacturer Airbus SAS, Foti said, adding, “When a company is wrongfully beat up, that is when you want to buy it.” Likewise, Visa is an investment target because it is a longstanding F1 investor. One growth company in the fund is Flir Systems, a Wilsonville, Ore. firm that makes thermal imaging products. In 2005, about one-third of F1 teams were using the company’s infrared cameras to gather thermal information on tires and electronic systems. Flir would later develop a partnership with the Red Bull Racing Formula One team. “We are buying that company because we see the application of that technology in many industries,” Foti said. “As that catches on, it will do really good.” Still, Greif, the investment banker, expressed skepticism as to the fund’s strategy. Investing in the car companies makes sense but other companies just sponsoring the races is a more tenuous connection, he said. “How well Formula One does has zero connection to how well Visa does,” he said. Tech upside As an investment, Foti points out that Formula One can take credit for technological advancements that eventually filter down to street cars. For example, F1 cars were able to cut down fuel usage by adopting energy recovery systems that take excess energy created from braking, turbo rotors and exhaust rotors for use in accelerating, Foti said. Looking forward, there is talk in auto industry circles that for its next generation GT86 sports car, Toyota Motor Corp. will include an F1-inspired kinetic energy recovery system. Another area where advanced technology plays a big part for the race cars is creating parts with 3-D printers. 3D Systems Corp., a Rock Hill, S.C. developer of 3-D printers, is another company in the mutual fund. As an example of how the printers are used on a race weekend, Foti said that sensors on a car can send information back to the car’s factory, even when thousands of miles away, where engineers can design a new part. The specifications of the new part are then sent back to the track where it can be made with a 3-D printer and put in the car that day, Foti said. “That is how quickly stuff is developed these days,” he added. Foti’s interest in Formula One racing dates back more than 30 years, when he was living in Long Beach at the time when the Long Beach Grand Prix was part of the Formula One circuit. In the years since, he has been to competitions all over the world – Italy, China, Canada and the granddaddy of them all in Monaco. Foti started the fund in 2010 in Lancaster where he has an office as a financial advisor with his other company, Experient Portfolio Management, which manages money for individual accounts. Autosport Fund Advisors Inc. is the management firm for Grand Prix. Foti admits that the High Desert is an unusual place for a mutual fund, but he stayed there after a local accounting firm started sending work his way to do financial planning for their clients that include professionals in the medical field and business owners. Work at Experient has not allowed Foti the time to promote the Grand Prix fund as he would like. The fund has primarily individual investors but Foti said he has been getting out to talk with institutions. While he tries to stay neutral when supporting teams and individual drivers, Foti said he favors Sebastian Vettel, a four-time world champion who drives for the Ferrari team, and Lewis Hamilton who drives for the Mercedes AMG team and has won three world championships. Recruiting investors is easy because F1 fans have groups that get together to watch the races throughout the states. The Los Angeles Formula One group has about 2,000 members, Foti said.
Profit Motive Drives Racing Fund
