Score With World Cup Trades

Hands holding soccer ball 1

Hands holding soccer ball 1The beautiful game of soccer celebrates with the kickoff of the World Cup tournament in Brazil tomorrow.  The entire planet will be watching and so will Wall Street.

This once-every-four-years affair attracts die-hard and casual fans alike.

Now investors can get in on the act too.

According to Goldman Sachs, the stock market of the winning World Cup country experiences a rally that can and should be traded.

In the month after a victory, the winning country outperforms the rest of the global market by a whopping 3.5%.That is a significant edge that can help boost your returns, assuming you know who the winner will be.

Even if the euphoria of victory lasts for only a month, there is an advantage to be had in playing these World Cup trades.

In short, to take advantage of this phenomenon, simply buy the country ETFs of the nations expected to take home the prize.

This year the odds-on favorite is Brazil. That makes iShares MSCI Brazil (NYSE: EWZ) a potential winner, should the host country win it all.

Because the winning country rally effect is short-lived, investors can turbocharge the impact by purchasing a Call option on the Brazilian exchange-traded fund.

To do so, look for the option expiring a month after the victor is declared in July. That would make the August expiration contracts your target.

Shares of EWZ have been in full-out rally mode since March, but that rally will likely continue if indeed Brazil can win the World Cup.

Goldman’s prediction is that Brazil has a near-50% chance of doing just that making this trade a possibility now in advance of the winner being determined.

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Brazil or Argentina?

Also high on Goldman’s list of nations favored to win is Argentina. One can expect the  euphoria of victory-filled rally to take stocks there higher for at least a month after the championship.

The exchange-traded fund option here is the Global X FTSE Argentina 20 (NYSE: ARGT).

Investors who want to ride an Argentinian win of the World Cup will take on a bit more risk as Argentinian stocks can be volatile, but like Brazil, the ARGT has been in rally mode since early 2014.

Unfortunately, there are few if any options traded on the ARGT, thus such a leveraged trade is off the table here.

Investors will have to be satisfied with the simple outperformance that comes from the month-long rally that would follow an Argentinian victory.

A hit for runners-up

But, be careful as there is a negative effect to losing the World Cup too.

Returns in the runner-up category, according to Goldman, lags the global market as sullen followers of the losing team sulk. That negative psyche translates to underperformance as compared to other global markets by 5% for the three months after the loss.

Deutsche Bank has its own predictions for the World Cup.

Interestingly, they have France as 7% favorite while current lines makers have the French at much lower odds.

From a betting perspective, that state should be viewed opportunistically. From an investing standpoint, not so much.

The reality is that predicting the winner of the World Cup will be quite difficult.

Perhaps the best advice is to watch the event unfold from the sidelines. Then when the Champion is announced, go ahead and make your trade.

If human emotion and behavior move markets, there are few events like winning the World Cup.

If you are patient, you can swoop in and make some money on that euphoric if short-lived move higher of the winning country.

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James (Jamie) Dlugosch is a contributing editor to MSN Money, The, and Traders Reserve. He has a long and distinguished career in the investment industry that includes editorial and publishing stints with the highly rated Rational Investor, The Prudent Speculator and the current Penny Stock Winners. Jamie was a contributing editor to InvestorPlace Media where his content was syndicated to numerous on-line financial sites including MSN Money and AOL Finance. At the turn of the Millennium he was the President and CEO of Al Frank Asset Management where he honed his skills under the tutelage of the well respected guru, Al Frank. With The Rational Investor Jamie adapted Al Frank’s long-term market beating strategy to reduce risk and increase ease of use for subscribers. He was quickly rewarded for his efforts by compiling the second highest total return of all investment newsletters in 2004 according to The Hulbert Financial Digest. His investment approach has produced winning returns in competitions held by MSN Money in their long running Strategy Lab. He also has successfully raised private capital for a variety of private ventures including the purchase of Al Frank Asset Management, an investment now worth many times its original cost. Jamie is frequent guest and contributor to a wide range of financial television, radio and internet broadcasts including CNBC, Market Watch and MSNMoney. Jamie holds a B.A. in Political Science from UCLA and a Masters in Business Administration (MBA) from the University of North Carolina, Chapel Hill. He resides in Minneapolis, MN with his wife Sarah and two daughters, Julia and Ellie.

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