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2018 World Cup Semi-Finals: ETF Version

Sanghamitra Saha
Mutual Fund Report for PGOFX

We are now at the nail-biting final rounds of the 2018 FIFA World Cup. Thanks to its wide global coverage, the event has overstepped the gaming arena and entered into the investing world (read: FIFA Frenzy Puts Spotlight on These Stocks and ETFs).

So far, speculation has been rife on whether host nation Russia can get any boost from this event and on which will lift the trophy on Jul 15 and monetize the credit in the equity market (read: Can FIFA World Cup Give Russia ETFs a Boost?)

Goldman Sachs’ report issued in 2014 indicated that the stock index of the winning country outperforms global indices by 3.5% over a month, though the bounce is fleeting. The bank also found that the losing finalists underperform by 5.6% over three months following the event.

Such trivia inspires us to play a mock World Cup semi-final using country ETFs as proxies. There is a high chance that the real tournament will present us with a different champion but landing up on a country ETF winner on the basis of its economic potential and past performance could be an intriguing idea.

Semi Finals

France and Belgium are slated to fight the Jul 10 battle while Croatia and England will have a face-off the following day.

So, it’ll be a war of European economies. Notably, though the continent was extremely upbeat last year, it started slowing this year. The ECB’s gradual retreat from QE and political instability including Brexit has made European investing vulnerable this year.

Semi Final – 1

iShares MSCI France ETF (EWQ) vs. iShares MSCI Belgium Capped ETF (EWK)

EWQ – The French economy grew 0.2% sequentially in Q1, unrevised from the second estimate and after a 0.7% expansion in the previous period. This marked the weakest clip of growth since the September quarter 2016.

Still, the economy is likely to attain 1.7% growth rate (down from the previous forecast of 2.3%) in 2018, per the national statistics agency. This was the same growth rate that the economy recorded last year. The French economy will likely see growth of 0.3% in Q2 and 0.4% in Q3 and Q4 each. 

While ripple effects of a global trade war, rising oil prices and the likely strength in the euro could come in the way of the French growth, improvement in exports and impact of tax cuts among households should benefit the economy.

The fund carries a Zacks ETF Rank #2 (Buy). EWZ has lost only 0.4% so far this year (as of Jul 6, 2018) but has been up 8.2% in the past one year.

EWK – EWK is the pure-play ETF to play the tracking Belgium’s equity market. Belgium’s economy grew 0.3% sequentially in Q1 of 2018, easing from 0.5% expansion in the previous period and coming in below the preliminary estimate of a 0.4% increase.

EWK has a Zacks ETF Rank #3 (Hold). The fund has shed about 4.8% in the year-to-date frame (as of Jul 6, 2018) and gained 2.8% in a year.

Verdict: France and EWQ beat Belgium thanks to better rank, returns and economic outlook.

Semi Final – 2

Croatia vs. iShares MSCI United Kingdom ETF (EWU)

Croatia: There is no ETF currently tracking this nation.

EWU: One of key ways to play England in ETF form is via EWU. The British economy expanded 0.2% sequentially in Q1 of 2018, slightly above the second estimate of 0.1% and following a 0.4% rise in the previous period. EWU has a Zacks ETF Rank of 3 and is down 3.3% so far this year but has been up 5.4% in the past year (read: Bank of England Keeps Interest Rates Intact: ETFs in Focus).

Verdict: In any case, EWU easily qualifies for the final thanks to the dearth of a pure-play ETF on Croatia. Plus, EWU comes second in terms of one-year returns among the final four. Investors should note that Croatia’s Zagreb Stock Exchange has lost about 1.5% in the past year.

Grand Finale

Our ranking system suggests that France and the United Kingdom will make it to the final. Rank-wise, EWQ becomes an easy winner. And economy-wise, the United Kingdom runs the risk of a harsh impact from Brexit.

The British economy is displaying the greatest signs of stress since the Eurozone crisis. Concerns over Brexit and sluggish ‘high-street’ expenditure have made British firms pessimistic, per a survey compiled by the recruitment firm ManpowerGroup.

Return-wise, EWQ has outperformed EWU in the past one-year, six-month and one-month periods. But over the last three-month period, EWU has taken an upper hand. So, EWQ wins the title, though the fight is expected to be a very close one.

Bottom Line

While we have crowned EWQ as the winner, investors should note that this fun game is based purely on financial details and has nothing to do with soccer. For investors interested in pouring their money into the international arena, the top-rated EWQ could make for an interesting choice, no matter what happens in the rest of the World Cup.

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ISHARS-FRANCE (EWQ): ETF Research Reports
ISHARS-UTD KING (EWU): ETF Research Reports
ISHARS-BELGIUM (EWK): ETF Research Reports
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