While the trade Simon has presented has been thoroughly back tested and is proven to be an effective low-to-medium risk trade, the correlation between the World Cup and stock market performance has not always been as clear.
Société Générale (SG), for one, has disproved the common belief that the winning country's market receives a subsequent lift from euphoric consumers – on only two occasions over the last nine World Cups has there been any significant outperformance. One was Germany in 1974, when it also hosted the event – and there is more evidence that the job creation from hosting an event does bring about a GDP-led stock market bounce. The other was Brazil in 1994, when it was already in a strong recovery after a major recession. In fact, in four of the seven remaining tournaments, the winning nation has seen their market underperform over the next 12 months.
SG has also used quantitative analysis to prove something that seems intuitive – that consumer-related sectors and stocks are most likely to benefit from the World Cup. But people rushing to upgrade their TV or having a flutter doesn't always translate into great returns – a year after the last World Cup electrical retailer DSG had lost nearly a third of its value. High-street bookies and media companies spent the year treading water, even after high pre-tournament expectations.
And although SG suggests European food and staples retailers have outperformed the market in eight of the last nine post-World Cup years, our own analysis shows that while the FTSE food and drug retail sector has returned on average 7.8 per cent in the last four tournaments, it has fallen heavily in two of those. Sectors with no direct link to the cup would statistically have been better bets. Put simply, don't be tricked by World Cup investment hype.
