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Europe's Woes Trumping Football Glory (EWG, EWI, EWP)

June 26, 2012 4:11 pm
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Europe’s worsening sovereign debt crisis is doing more than sending Italian and Spanish yields soaring. Returns have lagged for ETFs that track three of the four nations participating in the semifinal round of the 2012 UEFA EURO Finals.

Many may question the correlation to football wins and equity market performance. However, legitimate studies have demonstrated the link.

“For example, a loss in the World Cup elimination stage leads to a next-day abnormal stock return of -49 basis points. This loss effect is stronger in small stocks and in more important games,” according to the study “Sports Sentiment and Stock Returns.”

Three of the four UEFA EURO semifinalists are undoubtedly soccer blue bloods. Portugal, which has no ETF tracking it, has picked up the quality of its international play in recent years. Spain has won the last two major international competitions in has participated in – the 2010 World Cup and UEFA EURO 2008.

Those two nations square off in one semifinal. The other match is between Germany and Italy. Combined, those two countries own seven of the 19 World Cup titles (Italy with four, Germany with three.)

The worst result that the four sides have notched in UEFA EURO this year has been a draw. Germany, the Eurozone’s largest economy, has won all four of its matches. However, the sovereign debt calamity has thwarted any potential for the relevant ETFs to move higher.

iShares MSCI Germany Index Fund (NYSE: EWG)
As was previously noted, the Germans have looked nothing short of impressive in advancing deep into yet another international football tournament. Still, that has not benefited the iShares MSCI Germany Index Fund. The largest Germany-specific ETF is down about 3.1 percent since the tournament started. Other Germany ETFs have fallen as well. The First Trust Germany AlphaDEX Fund (NYSE: FGM) is off nearly 1.7 percent since the start of the tournament while the Market Vectors Germany Small-Cap ETF (NYSE: GERJ) has given up just over 4 percent.

iShares MSCI Spain Index Fund (NYSE: EWP)
Spain’s lone ETF has had a nightmarish recent track record. The fund could use any help it can get to move higher, football-related or otherwise. Spain’s footballers have not looked overly impressive in UEFA EURO, but the team has not lost and is on the brink of playing for another major title. The market could care less. EWP has lost about 1.4 percent since the tournament started.

iShares MSCI Italy Index Fund (NYSE: EWI)
Despite Italy’s rich football history, expectations were low for the Azzurri heading into this tournament. Some so-called experts said the team would not advance beyond the group stage. The problem for EWI is that expectations are low for Italy’s economy. Already in a recession, Italy is widely viewed as the next Eurozone shoe to drop after Spain. Even if that does not happen, EWI has lost roughly 5.3 percent since June 8.

Market Vectors Poland ETF (NYSE: PLND)
Poland has co-hosted 2012 UEFA EURO along with Ukraine, and while the team’s early exit from the tournament has left Polish football fans disappointed, investors can take heart in a few facts.

First, Poland still is not a member of the Eurozone. Second, Poland still has a better growth outlook than any of the PIIGS.

Finally, despite the fact that Poland is not among the tournament’s final four, Poland ETFs have reigned supreme. Since June 8, PLND and the iShares MSCI Poland Investable Market Index Fund (NYSE: EPOL) have each returned about 6 percent.

For more on UEFA EURO and ETFs, click here.

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