World Cup Winners

03 December 2025

• It’s that time of year when the inescapable passage of time sees the transition from one calendar year to the next, and with it the inevitable demand for the entire investment industry to view the world in new ways
• Thematic baskets are being launched to serve this purpose
• Our favourite so far is “World Cup Winners” – an orgy of consumption, over-indulgence and debauchery. Will it drive markets?

Clients and regular readers of our wordy meanderings will be aware of our use of Thematic Baskets as a Risk Management tool in portfolio construction. Whether its "AI winners", "AI losers", "Rebuild Ukraine", or "German Fiscal Stimulus", new themes can emerge at any time driven by geopolitics and policy, technological developments or pandemics. These themes can then drive new/stronger/weaker correlations between stocks in ways which challenge the explanatory power of the traditional multi-factor risk models (like BARRA and MAC-3, which fund managers point to as evidence of risk-aware investment discipline). In the time it takes for the established risk models to catch up with the new reality (as they use backward-looking time-series data), there is a danger that equity portfolios are running with undetected skews or concentrations, driven by themes.

What are Thematic Baskets?

Financial instruments sold by the derivatives desks at the major investment banks to their institutional clients. Each basket is like a new mini-index, with a series of stocks selected and given different weights, constructed in a way the desk believes offers the best way to play a theme rather than owning an individual stock or sector. Most of the big banks offer baskets for the same themes, but often with differences in the individual stock selection and weighting of constituents. The beauty for the banks, which are of course incentivised to encourage trading, is that new themes are constantly emerging, providing a continuous flow of opportunities to say "we've got a basket for that!" to their clients.

Naturally, some themes are big in market breadth: for example, the "AI power surge" baskets which aim to capture the entire supply chain of AI right back to power generation, incorporate stocks which collectively account for over 10% of the European equity benchmark. Other themes are narrower in terms of benchmark relevance, but can be extremely potent: "Rebuild Ukraine" baskets include stocks that account for only around 2-3% of the European equity benchmark, but the stocks within the basket display a strong covariance when ceasefire-related headlines hit the tape, as in recent weeks.

Therefore, when monitoring the thematic basket universe and our portfolio exposures, we're considering both the benchmark relevance and the strength and durability of a given theme.

Our Favourite new basket is "World Cup Winners"

Special thanks to the team at JP Morgan for launching a new thematic basket we can all get behind in 2026. This basket aims to identify the European-listed companies which stand to benefit from the world's greatest sporting event, which will be held across the USA, Mexico and Canada in summer 2026. Let's take a look:

By industry, the basket is heavily skewed to drinking, gambling, sportswear, travelling and media.

At an individual stock level, it reads like a dream weekend for the UK-based GAM European Equity team: an all-day odyssey of industrial-scale mass-market lager at Wetherspoons watching the football, interspersed with regular sustenance breaks at Greggs. Whitbread (Premier Inn hotels) serves as temporary respite for the weary Englishman seeking to avoid domestic disgrace and potential divorce proceedings, at least until the next day. Whoever at JP Morgan curated this esoteric basket has clear domain expertise. We salute them. Our only refinement to the basket would be the addition of a supplier of First Aid essentials: for the over-exuberant, cognitively compromised chap who, having watched England lose on penalties in the semi-final, goes windmilling into a group of bigger boys, only to receive a valuable lesson in Risk Management.

Our actual portfolio holdings - of which there are five - are highlighted in yellow. As it turns out, this holy trinity - an always-harmonious combination of booze, sportswear and air travel - is our largest "thematic overweight" in the portfolio. Our subconscious, inner Liam Gallagher has now been legitimised as a potential route to Thematic-based alpha generation on behalf of clients in 2026. The basket takes in names which account for just over 2% of the European equity benchmark, whereas our five holdings account for around 9%* of our strategy. We are therefore close to 7% "overweight" the “World Cup Winners” thematic, according to the gospel of JP Morgan. The serious question is the extent to which this thematic overlay will drive higher covariance between the constituents of the basket and, therefore, the extent to which we have a clear and sizeable thematic skew in the portfolio. We wrote a couple of months ago about the World Cup year offering additional upside to the prospects for our sportswear holdings Adidas and JD Sports, though it is not central to our thesis.

Based on the dispersion of year-to-date share price performance in these names, it would be fair to so say that so far, there has been no unifying thematic support. Will this change in 2026? It seems unlikely given most of these companies would describe the World Cup as potentially a nice bump to sales rather than anything more significant or durable. However, it could be incrementally helpful to stocks that are arguably oversold but fundamentally good businesses - this has been the basic premise for our purchase of the likes of Diageo and JD Sports in recent months.

It looks like the "World Cup Winners" theme may not drive 2026 European market returns in the way AI or Defence has in 2025, but it should be a lot more fun. Cheers to that.

Tom O’Hara, Jamie Ross and David Barker manage European Equities strategies at GAM Investments. You can find out more information on the team and the strategies they are responsible for here.