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Filling March Madness in "Sweet 16" Brackets of ETFs
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The National Collegiate Athletic Association (NCAA) Division I Men's Basketball Tournament kicked off last week and is expected to continue for two more weeks. The champion will be crowned on Apr 5 at Lucas Oil Stadium in Indianapolis. The tournament works its way up from 64 college teams to ‘Sweet Sixteen’ to be played on Mar 25, followed by ‘Elite Eight’, ‘Final Four’ and ultimately the championship.
The basketball frenzy spills over to the stock market with various corners of the economy such as media, advertising, restaurants, hotels and airlines turning out to be the biggest beneficiaries. The excitement surrounding the tournament and its impact on the stock world has led investors to look at ETFs that could act as a proxy for the game. Since the tournament has reached Sweet Sixteen, let’s start filling the brackets from this level (read: Sports Betting ETFs to Rally on March Madness Gambling).
Similar to the four-region criteria of the real championship, we have chosen four factors, namely monetary policies, economy, fundamentals and investment strategies. Then, we have shortlisted 16 ETFs that are popular in the respective segments and fit our criteria. Fortunately, each of these funds has a Zacks ETF Rank making our seeding easier. In case of a tie between ranks, we have considered the year-to-date performance in selecting the ETF qualifying for the next round.
Monetary Policies
United States (VTI - Free Report) vs. Europe VGK— Currently, the United States and Europe are following a similar path toward monetary policies. The Federal Reserve in its latest meeting maintained interest rate near zero with no interest rate hikes through 2023 while the European Central Bank kept interest rates at historic level at zero. VTI wins with a Zacks ETF Rank #2 (Buy) compared with a Zacks ETF Rank #3 (Hold) for VGK.
Winner: VTI
Gold (GLD - Free Report) vs. Dollar (UUP - Free Report) — Gold and dollar move in opposite directions and are largely influenced by monetary policies. While lower rates will pull out more capital from the country, leading to depreciation of the dollar, it raises the yellow metal’s attractiveness. Though both GLD and UUP have a Zacks ETF Rank #3, the latter has an edge over GLD in terms of year-to-date performance.
Winner: UUP
Economy
U.S. Market (SPY - Free Report) vs. International Market VEU — The faster rollout of COVID-19 vaccinations and progress on more vaccines are expected to expedite the pandemic-hit global economy, boosting investors’ confidence. Though both the funds have a Zacks ETF Rank #3, SPY is outperforming from a year-to-date look by a thin margin.
Winner: SPY
Developed Market VEA vs. Emerging Market (EEM - Free Report) — Though both funds have a Zacks ETF Rank #3, VEA stole the show having gained 5.4% so far this year compared with 4.3% gain for EEM.
Winner: VEA
Fundamentals
Mega Cap (DIA - Free Report) vs. Small Cap (IWM - Free Report) — The Wall Street has staged a solid comeback from the pandemic lows on bets of faster-than-expected recovery. Small-caps are expected to lead the rally as these are closely tied to the U.S. economy and are poised to outperform when the economy improves. DIA with a Zacks ETF Rank #2 has an edge over IWM’s Zacks ETF Rank #3 (read: A Spread of Small-Cap ETFs Touching New Heights).
Winner: DIA
Value IWD vs. Growth (QQQ - Free Report) — Value stocks have been hogging investors’ attention lately as improving economy will result in increased industrial activity and pickup in consumer demand, thereby lifting value stocks. On the other hand, rising yields have been taking a toll on growth stocks lately. However, QQQ wins with a Zacks ETF Rank #1 (Strong Buy) compared with a Zacks ETF Rank #3 for IWD.
Winner: QQQ
Investment Strategies
Low Volatility (USMV - Free Report) vs. Dividend (VIG - Free Report) — With the soaring stock markets, the appeal for the low volatility theme has dulled this year while dividend investing remained hot. VIG wins with a Zacks ETF Rank #2 against the Zacks ETF Rank #3 for USMV.
Winner: VIG
Long-Term Treasury (TLT - Free Report) vs. High-Yield Bond (HYG - Free Report) — Soaring yields pushed down Treasury ETFs, especially the long-term ones while raising the demand for high yield bonds to shield against rising interest rates. Though TLT and HYG each have a Zacks ETF Rank #4 (Sell), the latter wins losing just 0.3% so far this year against loss of 13.4% for TLT (read: ETFs to Win/Lose If U.S. 10-Year Yield Shoots Up to 2%).
Winner: HYG
Elite Eight (Mar 27)
Among the eight winning ETF teams, the six-month (13-week) performance was used to decide the winner of each region.
Monetary Policies:United States vs. Dollar — VTI emerges as the undisputed winner, gaining about 6% in the six months versus gain of 2% for UUP.
Economy: U.S. Market vs. Developed Market— VEA beats SPY by a thin margin of 45 bps in the past six months.
Fundamentals: Mega Cap vs. Growth — DIA outpaces QQQ by nearly 560 bps.
Investment Strategies: Dividend vs. High-Yield Bond — VIG has risen about 4% over the past six months against a gain of 0.7% for HYG.
Final Four (Apr 3)
We come to the last four teams in this playoff tournament and the best in their specific regions. We now look at the trailing one-year performance to see who has the maximum momentum heading into the next level. In the matchups, we have United States versus Developed Market on one side and Mega Cap versus Dividend on the other.
Vanguard Total Stock Market ETF (VTI - Free Report) versus Vanguard FTSE Developed Markets ETF (VEA)
For this ETF faceoff, VTI represents United States and VEA stands for developed markets. Let’s take a closer look at these funds before deciding on the winner:
VTI — This is the popular ETF with AUM of $221.2 billion and average daily volume of 4.3 million shares. It tracks the CRSP US Total Market Index and holds a broad basket of 3669 stocks with each accounting for no more than 4.7% of the assets. The fund is slightly skewed toward information technology at 26.2% share while consumer discretionary, industrials, health care, and financials and round off the next four with double-digit exposure each. The product charges 3 bps in fees per year and has gained 85.5% over the trailing one-year period (read: 1-Year Tour From Market Crash to Boom: 5 Top ETFs).
VEA — This fund tracks the FTSE Developed All Cap ex US Index and holds 4006 securities with each accounting for less than 2% of the assets. It is well spread across sectors with financials, industrials, consumer cyclical, information technology, and healthcare that account for double-digit exposure each. Among the countries, Japan and United Kingdom take the largest share at 22.6% and 12.3%, respectively while France, China, Switzerland and Germany make up for 7% share each. The product has AUM of $94.2 billion and trades in solid volume of 9.8 million shares per day. It charges 5 bps in fees per year from investors and has gained 73.6% in a year’s time.
Winner: United States ETF wins and advances toward the final round to take on the winner of the Mega Cap versus Dividend match.
SPDR Dow Jones Industrial Average ETF (DIA - Free Report) vs. Vanguard Dividend Appreciation ETF (VIG - Free Report)
For this faceoff, DIA represents mega cap and VIG represents dividend. Below, we take a closer look at these funds before picking the winner:
DIA — With AUM of $27.9 billion, this ETF holds 30 stocks in its basket with each security making up for no more than 7.4% share. The fund is widely spread across sectors with information technology, industrials, healthcare, financials and consumer discretionary being the top five. It charges 16 bps in fees per year from investors and trades in heavy volume of around 3.7 million shares a day on average. The ETF is up 77.6% in a year (read: Dow Jones Hits 33K: ETFs to Ride the Rally).
VIG — This is the largest and the most popular ETF in the dividend space with AUM of $54.5 billion and average daily volume of 1.5 million shares. The fund follows the NASDAQ US Dividend Achievers Select Index, which is composed of high-quality stocks that have a record of raising dividends every year. It holds 212 securities in the basket with none accounting for more than 4.6% share. The fund charges 6 bps in annual fees and has gained 64.7% in a year (read: A Guide to Dividend Aristocrat ETFs).
Winner: Mega-cap ETF wins to compete with United States ETF for the championship.
The National Championship (Apr 5)
For the championship, let’s look at the performance of both ETFs over the past five years. DIA has gained nearly 106% compared with 97% gain for VIG. This suggests that in the ETF world, SPDR Dow Jones Industrial Average ETF (DIA - Free Report) will likely emerge as the winner of the 2020 March Madness championship based on our ranking system and its recent performance.
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Filling March Madness in "Sweet 16" Brackets of ETFs
The National Collegiate Athletic Association (NCAA) Division I Men's Basketball Tournament kicked off last week and is expected to continue for two more weeks. The champion will be crowned on Apr 5 at Lucas Oil Stadium in Indianapolis. The tournament works its way up from 64 college teams to ‘Sweet Sixteen’ to be played on Mar 25, followed by ‘Elite Eight’, ‘Final Four’ and ultimately the championship.
The basketball frenzy spills over to the stock market with various corners of the economy such as media, advertising, restaurants, hotels and airlines turning out to be the biggest beneficiaries. The excitement surrounding the tournament and its impact on the stock world has led investors to look at ETFs that could act as a proxy for the game. Since the tournament has reached Sweet Sixteen, let’s start filling the brackets from this level (read: Sports Betting ETFs to Rally on March Madness Gambling).
Similar to the four-region criteria of the real championship, we have chosen four factors, namely monetary policies, economy, fundamentals and investment strategies. Then, we have shortlisted 16 ETFs that are popular in the respective segments and fit our criteria. Fortunately, each of these funds has a Zacks ETF Rank making our seeding easier. In case of a tie between ranks, we have considered the year-to-date performance in selecting the ETF qualifying for the next round.
Monetary Policies
United States (VTI - Free Report) vs. Europe VGK — Currently, the United States and Europe are following a similar path toward monetary policies. The Federal Reserve in its latest meeting maintained interest rate near zero with no interest rate hikes through 2023 while the European Central Bank kept interest rates at historic level at zero. VTI wins with a Zacks ETF Rank #2 (Buy) compared with a Zacks ETF Rank #3 (Hold) for VGK.
Winner: VTI
Gold (GLD - Free Report) vs. Dollar (UUP - Free Report) — Gold and dollar move in opposite directions and are largely influenced by monetary policies. While lower rates will pull out more capital from the country, leading to depreciation of the dollar, it raises the yellow metal’s attractiveness. Though both GLD and UUP have a Zacks ETF Rank #3, the latter has an edge over GLD in terms of year-to-date performance.
Winner: UUP
Economy
U.S. Market (SPY - Free Report) vs. International Market VEU — The faster rollout of COVID-19 vaccinations and progress on more vaccines are expected to expedite the pandemic-hit global economy, boosting investors’ confidence. Though both the funds have a Zacks ETF Rank #3, SPY is outperforming from a year-to-date look by a thin margin.
Winner: SPY
Developed Market VEA vs. Emerging Market (EEM - Free Report) — Though both funds have a Zacks ETF Rank #3, VEA stole the show having gained 5.4% so far this year compared with 4.3% gain for EEM.
Winner: VEA
Fundamentals
Mega Cap (DIA - Free Report) vs. Small Cap (IWM - Free Report) — The Wall Street has staged a solid comeback from the pandemic lows on bets of faster-than-expected recovery. Small-caps are expected to lead the rally as these are closely tied to the U.S. economy and are poised to outperform when the economy improves. DIA with a Zacks ETF Rank #2 has an edge over IWM’s Zacks ETF Rank #3 (read: A Spread of Small-Cap ETFs Touching New Heights).
Winner: DIA
Value IWD vs. Growth (QQQ - Free Report) — Value stocks have been hogging investors’ attention lately as improving economy will result in increased industrial activity and pickup in consumer demand, thereby lifting value stocks. On the other hand, rising yields have been taking a toll on growth stocks lately. However, QQQ wins with a Zacks ETF Rank #1 (Strong Buy) compared with a Zacks ETF Rank #3 for IWD.
Winner: QQQ
Investment Strategies
Low Volatility (USMV - Free Report) vs. Dividend (VIG - Free Report) — With the soaring stock markets, the appeal for the low volatility theme has dulled this year while dividend investing remained hot. VIG wins with a Zacks ETF Rank #2 against the Zacks ETF Rank #3 for USMV.
Winner: VIG
Long-Term Treasury (TLT - Free Report) vs. High-Yield Bond (HYG - Free Report) — Soaring yields pushed down Treasury ETFs, especially the long-term ones while raising the demand for high yield bonds to shield against rising interest rates. Though TLT and HYG each have a Zacks ETF Rank #4 (Sell), the latter wins losing just 0.3% so far this year against loss of 13.4% for TLT (read: ETFs to Win/Lose If U.S. 10-Year Yield Shoots Up to 2%).
Winner: HYG
Elite Eight (Mar 27)
Among the eight winning ETF teams, the six-month (13-week) performance was used to decide the winner of each region.
Monetary Policies: United States vs. Dollar — VTI emerges as the undisputed winner, gaining about 6% in the six months versus gain of 2% for UUP.
Economy: U.S. Market vs. Developed Market — VEA beats SPY by a thin margin of 45 bps in the past six months.
Fundamentals: Mega Cap vs. Growth — DIA outpaces QQQ by nearly 560 bps.
Investment Strategies: Dividend vs. High-Yield Bond — VIG has risen about 4% over the past six months against a gain of 0.7% for HYG.
Final Four (Apr 3)
We come to the last four teams in this playoff tournament and the best in their specific regions. We now look at the trailing one-year performance to see who has the maximum momentum heading into the next level. In the matchups, we have United States versus Developed Market on one side and Mega Cap versus Dividend on the other.
Vanguard Total Stock Market ETF (VTI - Free Report) versus Vanguard FTSE Developed Markets ETF (VEA)
For this ETF faceoff, VTI represents United States and VEA stands for developed markets. Let’s take a closer look at these funds before deciding on the winner:
VTI — This is the popular ETF with AUM of $221.2 billion and average daily volume of 4.3 million shares. It tracks the CRSP US Total Market Index and holds a broad basket of 3669 stocks with each accounting for no more than 4.7% of the assets. The fund is slightly skewed toward information technology at 26.2% share while consumer discretionary, industrials, health care, and financials and round off the next four with double-digit exposure each. The product charges 3 bps in fees per year and has gained 85.5% over the trailing one-year period (read: 1-Year Tour From Market Crash to Boom: 5 Top ETFs).
VEA — This fund tracks the FTSE Developed All Cap ex US Index and holds 4006 securities with each accounting for less than 2% of the assets. It is well spread across sectors with financials, industrials, consumer cyclical, information technology, and healthcare that account for double-digit exposure each. Among the countries, Japan and United Kingdom take the largest share at 22.6% and 12.3%, respectively while France, China, Switzerland and Germany make up for 7% share each. The product has AUM of $94.2 billion and trades in solid volume of 9.8 million shares per day. It charges 5 bps in fees per year from investors and has gained 73.6% in a year’s time.
Winner: United States ETF wins and advances toward the final round to take on the winner of the Mega Cap versus Dividend match.
SPDR Dow Jones Industrial Average ETF (DIA - Free Report) vs. Vanguard Dividend Appreciation ETF (VIG - Free Report)
For this faceoff, DIA represents mega cap and VIG represents dividend. Below, we take a closer look at these funds before picking the winner:
DIA — With AUM of $27.9 billion, this ETF holds 30 stocks in its basket with each security making up for no more than 7.4% share. The fund is widely spread across sectors with information technology, industrials, healthcare, financials and consumer discretionary being the top five. It charges 16 bps in fees per year from investors and trades in heavy volume of around 3.7 million shares a day on average. The ETF is up 77.6% in a year (read: Dow Jones Hits 33K: ETFs to Ride the Rally).
VIG — This is the largest and the most popular ETF in the dividend space with AUM of $54.5 billion and average daily volume of 1.5 million shares. The fund follows the NASDAQ US Dividend Achievers Select Index, which is composed of high-quality stocks that have a record of raising dividends every year. It holds 212 securities in the basket with none accounting for more than 4.6% share. The fund charges 6 bps in annual fees and has gained 64.7% in a year (read: A Guide to Dividend Aristocrat ETFs).
Winner: Mega-cap ETF wins to compete with United States ETF for the championship.
The National Championship (Apr 5)
For the championship, let’s look at the performance of both ETFs over the past five years. DIA has gained nearly 106% compared with 97% gain for VIG. This suggests that in the ETF world, SPDR Dow Jones Industrial Average ETF (DIA - Free Report) will likely emerge as the winner of the 2020 March Madness championship based on our ranking system and its recent performance.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>