We've had a lot of questions about the World Cup portfolio (WCP) and its amazing performance so far this year. Through the first 3 quarters of 2014, it's had a very positive 99% return on invested capital.
One of the many questions we have had is, "Can I substitute ETFs for the markets in the WCP?" The short answer is yes you can, but there is one important caveat.
You're not going to get the same returns as the World Cup portfolio. The main reason for this is the leverage involved in the futures markets. In the futures market, you're only putting up a small percentage of the value of the contract. For example in gold, the current margin is $4,400 to control 100 ounces, which is the size of one gold futures contract. Your margin requirements are less than 4% of the total value of one contract. If gold is trading at $1,250, 100 ounces or one contract is worth $125,000.
You don't have that same kind of leverage in an ETF.
Here are the equivalent ETFs to replicate the World Cup portfolio. Please remember this is not a recommended portfolio, as there is no way to short corn, wheat, or soybeans. [Read more...]