The 2014 World Cup starts today with host nation Brazil taking on Croatia. Although volume will likely be light, a victory by Brazil today could lift Brazilian equities and the corresponding exchange traded funds on Friday.
On that note, it is time to look at the ETFs tied to the countries with good to excellent chances of winning this year’s World Cup. Overall, there are 32 teams in the World Cup, 21 of which have at least one U.S.-listed country-specific exchange traded fund and we recently examined the ETFs, many of which are performing nicely, for the countries with long odds of taking home the tile. [World Cup ETFs: The Pretenders]
This is the list of the legitimate contenders and as was the case with the pretenders list, there are some valid ETF ideas here.
Just remember that when it comes to some of the Latin America offerings found here, volume could be especially sluggish on days when those nations have a World Cup match and volatility could increase the day following a loss.
Odds are courtesy of Sky Bet as of Wednesday afternoon June 11, 2014.
iShares MSCI Chile Capped ETF (NYSEArca: ECH)
Odds to win: 50/1
ETF Year-to-date: Up 0.8%
Comment: ECH’s 2014 performance seems paltry compared to some other Latin America ETFs, but consider this: The lone Chile ETF has surged 11.1% in the past three months, better than triple the performance of the iPath Dow Jones-UBS Copper Total Return Sub-Index ETN (NYSEArca: JJC) over the same time. Chile is the world’s largest copper producer.
During the 2010 World Cup “Chile saw the sharpest drop in trading activity as volume plunged 99.5% when their national team was playing and 79% when other nations were playing while Brazil saw a fall of 74.5% in trading volume when their national team was playing and a 28.5% fall when other nations were playing,” according to Emerging Equity.
iShares MSCI Netherlands ETF (NYSEArca: EWN)
Odds to win: 28/1
ETF YTD: Up 2.6%
Comment: The Dutch play in a tough group with Spain, but are predicted to advance to the knockout stages. EWN has not been knocked out, but the Netherlands ETF has been a laggard this year compared to other Eurozone single-country offerings.
Slack economic data is hampering the Dutch economy, which was once seen as resilient during the darkest days of the European sovereign debt crisis. That has EWN trailing its Belgian, German and Swiss rivals this year. [Not a Dutch Treat: Netherlands ETF Struggles]
iShares MSCI United Kingdom ETF (NYSEArca: EWU)
Odds to win: 25/1
ETF YTD: Up 5.6%
Comment: British stocks are somewhat richly valued relative to their Eurozone counterparts, but EWU hovers near its highest levels in six years. On a CAPE basis, U.K. equity markets rank neutral, which could be a sign recent gains for British stocks can continue. There are detractors, most of which point to the strong pound and the potential for higher interest rates from the Bank of England.
iShares MSCI Italy Capped ETF (NYSEArca: EWI)
Odds to win: 25/1
ETF YTD: Up 17.8%
Comment: EWI has been of the beneficiaries of the resurgence by and inflows to equities in the PIIGS nations. Italy has the same odds as England of winning the World Cup, though those numbers could change in a few days as the two nations face-off on Saturday in the first match for both.
Although Italian stocks are still discounted compared to their U.K., German and Swiss counterparts, EWI has issues to contend with. Prime Minister Matteo Renzi’s government is tackling a $2.9 trillion deficit, or 133.6% of 2014 GDP. The administration is seeking to cut spending and help fund tax cuts for low-income workers. Italy’s government estimates that the economy will expand 0.8% this year, despite contracting 0.1% in the first quarter. Meanwhile, the S&P expects GDP growth to average 0.9% between 2014 and 2016. [Weak Growth Prospects Could Weigh on Italy ETF]
Global X FTSE Portugal 20 ETF (NYSEArca: PGAL)
Odds to win: 22/1
ETF YTD: Up 14.6%
Comment: Portugal’s star player, Cristiano Ronaldo, is knicked up heading into the World Cup but looked to be in fine form in tune-up match earlier this week. PGAL has been in fine form for most of this year as $22.8 million of its $26.5 million in assets under management have flowed into the ETF since the start of the year.
“Exports continue to drive economic growth, while private investment and consumption have also started to pick up. Unemployment is expected to decline further, in line with the moderate economic recovery expected in 2014 and 2015,” said the International Monetary Fund in a statement. The IMF also noted increased strength in the Portuguese banking sector, which is important due to PGAL’s 21.2% weight to the financial services sector, according to Global X data.
iShares MSCI France ETF (NYSEArca: EWQ)
Odds to win: 22/1
ETF YTD: Up 8.8%
Comment: Given some recent injuries to key players, these odds appear too good on France. EWQ has enjoyed decent upside this year. French stocks, perhaps by way of their “laggard” status to these markets, are less expensive than their British, German and Swiss counterparts. French 10-year government bonds now yield less than 2% for the first time in almost a year, indicating investors have faith in the country despite it grappling with budget deficit issues.
iShares MSCI Germany ETF (NYSEArca: EWG)
Odds to win: 6/1
ETF YTD: Up 3.9%
Comment: Germany, the Eurozone’s largest economy, is a perennial World Cup contender and the first opponent for the U.S. EWG is the largest Germany ETF, but it has some interesting rivals in the db X-trackers MSCI Germany Hedged Equity Fund (NYSEArca: DBGR) and the WisdomTree Germany Hedged Equity Fund (NasdaqGM: DXGE).
Although some market observers have argued the European Central Bank did not go far enough with its recently announced economic growth efforts, there is no denying the advantages of hedged currency ETFs when the euro falls. The euro is now down slightly year-to-date, but DBGR and DXGE have posted an average gain of 6.5%.
iShares MSCI Spain Capped ETF (NYSEArca: EWP)
Odds to win: 6/1
ETF YTD: Up 17%
Comment: Spain won the 2010 World Cup and the 2012 European Championship, proving the country knows how to win on the largest of international stages. EWP is learning how to do that, too. The ETF is one of the best-performing developed markets single-country offerings this year and Spanish 10-year yields are now comparable to those of their U.S. counterparts.
Global X FTSE Argentina 20 ETF (NYSEArca: ARGT)
Odds to win: 4/1
ETF YTD: Up 10%
Comment: Along with Spain, Argentina are widely regarded as the side with the best chance to topple Brazil for World Cup glory and the oddsmakers agree. It does not get the attention that other Latin America ETFs do, but ARGT has impressed with a 10% gain this year, putting it in a tight race with its Brazil and Colombia rivals for top honors among Latin America single-country ETFs in 2014. ARGT won that battle last year as the only one of the region’s country-specific funds to post a year-to-date gain.
iShares MSCI Brazil Capped ETF (NYSEArca: EWZ)
Odds to win: 11/4
ETF YTD: 15.1%
Comment: Last month, Goldman Sachs said buy Brazilian stocks on thesis that stocks in the World Cup victor’s country rise 3.5% in the month after the tournament concludes. Two things to consider about that advice: Brazil is the favorite, but no lock. Second, as Goldman noted, post-World Cup gains often quickly evaporate. [Buy Brazil ETFs as World Cup Bets]
Still, there is no denying EWZ and other Brazil ETFs have been bid higher leading up to today. The largest Brazil ETF has surged 7.1% in just the past week and traded higher Wednesday even as most emerging markets struggled, another sign of EWZ’s improving relative strength against key benchmarks. [Pre-World Cup Bounce for Brazil ETFs]
During the 2010 World Cup, Brazil saw a fall of 74.5% in trading volume when their national team was playing and a 28.5% fall when other nations were playing,” according to Emerging Equity.