Yahoo Finance Filling NCAA in "Sweet 16" ETF Brackets
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 8 at the State Farm Stadium in Glendale, AZ. The tournament works its way up from 64 college teams to “Sweet Sixteen,” to be played on Mar 28, 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: Top 5 ETF Picks for March Madness Betting Frenzy).
Similar to the four-region criteria of the real championship, we have chosen four factors, namely economy, asset class, fundamentals and investment strategies. 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.
Economy
U.S. Market (SPY) vs. International Market (VEU) — The global stock market has been on a rally this year, buoyed by strong corporate earnings, AI developments and renewed confidence in the tech sector. Though both SPY and VEU have a Zacks ETF Rank #3 (Hold), SPY wins as it has risen 10% so far this year compared with VEU’s 4.5% rise.
Winner: SPY
Developed Market (VEA) vs. Emerging Market (EEM) — Here, VEA, with a Zacks ETF Rank #3, has an edge over EEM’s Zacks ETF Rank #4 (Sell).
Winner: VEA
Asset Class
Equity (VTI) vs. Treasury (TLT) — The U.S. stock bulls have been roaring higher while the fixed-income market is witnessing a volatile ride. VTI wins with a Zacks ETF Rank #2 (Buy) compared with a Zacks ETF Rank #4 for TLT.
Winner: VTI
Gold (GLD) vs. Dollar (UUP) — Gold touched a new high in recent weeks on Fed rate cuts speculation, while the dollar has also shown strength on longer-than-expected higher interest rates in play. UUP, with a Zacks ETF Rank #2, has an edge over GLD’s Zacks ETF Rank #3 (read: 3 Reasons to Play Gold ETFs Now).
Winner: UUP
Fundamentals
Mega Cap (DIA) vs. Small Cap (IWM) — Mega-cap stocks have been soaring this year while small-cap stocks are lagging. The Fed rate cuts are expected to benefit small-caps more than the large-caps. DIA, with a Zacks ETF Rank #1 (Strong Buy), has an edge over IWM’s Zacks ETF Rank #2.
Winner: DIA
Value (IWD) vs. Growth (QQQ) — Uncertainty surrounding the timing of the Fed rate cuts is raising the appeal for value investing, while the potential for lower rates this year is driving up demand for growth stocks as they offer high returns. As such, both IWD and QQQ have Zacks ETF Rank #2. However, QQQ wins with a year-to-date return of 9.1% compared with 7% for IWD.
Winner: QQQ
Investment Strategies
Dividend (VIG) vs. High-Yield Bond (HYG) - Dividend investing remains a popular strategy for investors amid volatility and uncertainty. Though this does not offer dramatic price appreciation, the strategy is a major source of consistent income for investors in any market. On the other hand, high-yield bonds, often referred to as "junk bonds," are bonds issued by companies that tend to outperform the other corners of the fixed-income market when the economy is in full swing. However, these carry a higher risk of default than more highly rated, investment-grade bonds. VIG wins with a Zacks ETF Rank #1 against the Zacks ETF Rank #4 for HYG.
Winner: VIG
Low Volatility (USMV) vs. Quality (QUAL) - Low-volatility ETFs have the potential to outpace the broader market in bearish conditions or in an uncertain environment, providing significant protection to the portfolio. On the other hand, quality stocks reduce volatility when compared to plain vanilla funds and hold up rather well during market swings. These are rich in value characteristics with a healthy balance sheet, high return on capital, low volatility, elevated margins, and a track of stable or rising sales and earnings growth. Though both USMV and QUAL have a Zacks ETF Rank #3, QUAL wins as it has gained 12.1% so far this year compared with 6.4% gains for USMV.
Winner: QUAL
Elite Eight (Mar 30)
Among the eight winning ETF teams, we have taken into consideration the six-month performance to decide the winner of each region.
Economy: U.S. Market vs. Developed Market — SPY has emerged as the undisputed winner, gaining about 21.8% in the past six months compared with a gain of 14.8% for VEA.
Asset Class: Equity vs. Dollar — VTI has risen about 22% over the past six months against a loss of 5.4% for UUP.
Fundamentals: Mega Cap vs. Growth — QQQ outpaces DIA by nearly 480 bps.
Investment Strategies: Dividend vs. Quality — QUAL has risen about 24.6% over the past six months against a gain of 15.3% for VIG.
Final Four (Apr 6)
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 U.S. Market vs. Equity on one side and Growth versus Quality on the other.
SPDR S&P 500 ETF Trust (SPY) versus Vanguard Total Stock Market ETF (VTI)
For this ETF faceoff, SPY represents U.S. Markets and VTI stands for Equity. Let’s take a closer look at these funds before deciding on the winner:
SPY — SPDR S&P 500 ETF Trust holds 503 stocks in its basket, with each accounting for no more than 7.2% of the assets. This suggests a nice balance across each security and prevents heavy concentration. The fund is widely spread across sectors with information technology, financials, healthcare and consumer discretionary accounting for a double-digit allocation each.
SPDR S&P 500 ETF Trust charges 9 bps in fees per year and trades in 63 million shares per day on average. It has AUM of $533 billion and has gained 34.5% over the trailing one-year period (read: S&P 500's Bull Run to Continue: ETFs to Bet On).
VTI — Vanguard Total Stock Market ETF provides exposure to the broader stock market by tracking the CRSP US Total Market Index. It holds a large basket of well-diversified 3,731 stocks with key holdings in technology, consumer discretionary, industrials, healthcare and financials.
Vanguard Total Stock Market ETF charges 3 bps in fees per year from investors and trades in an average daily volume of 3 million shares. It has AUM of $388 billion and has surged 33.6% in a year.
Winner: U.S. Market ETF wins and advances toward the final round to take on the winner of the Growth versus Quality match.
Invesco QQQ (QQQ) vs. iShares MSCI USA Quality Factor ETF (QUAL)
For this faceoff, QQQ represents growth and QUAL represents quality. Below, we take a closer look at these funds before picking the winner:
QQQ — With AUM of $257.7 billion, Invesco QQQ provides exposure to the 101 largest domestic and international non-financial companies listed on the Nasdaq. Information technology accounts for 57.9% of the assets, while consumer discretionary makes up a 19.1% share.
Invesco QQQ charges 20 bps in annual fees and trades in an average daily volume of around 42.2 million shares. The ETF is up 45% in a year.
QUAL — With an AUM of $42.6 billion, iShares MSCI USA Quality Factor ETF provides exposure to large and mid-cap stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth and low financial leverage) by tracking the MSCI USA Sector Neutral Quality Index. QUAL holds 125 stocks in its basket, with each making up not more than a 7.2% share.
iShares MSCI USA Quality Factor ETF charges 15 bps of annual fees and trades in an average daily volume of 2 million shares. It has risen 39.2% in a year.
Winner: Quality ETF wins to compete with U.S. Market ETF for the championship.
The National Championship (Apr 8)
For the championship, let’s look at the performance of both ETFs over the past five years. QUAL has gained nearly 86% compared with an 85% gain for SPY.
Result
Based on our ranking system and its recent performance, it seems that iShares MSCI USA Quality Factor ETF (QUAL) will likely emerge as the winner of the 2024 NCAA championship. While it was exciting and fun to dribble toward the winning ETF, we expect the twists and turns in the NCAA tournament to lead to some dramatic moves in the investment world, too.
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iShares 20+ Year Treasury Bond ETF (TLT): ETF Research Reports
Invesco QQQ (QQQ): ETF Research Reports
SPDR Gold Shares (GLD): ETF Research Reports
SPDR S&P 500 ETF (SPY): ETF Research Reports
iShares iBoxx $ High Yield Corporate Bond ETF (HYG): ETF Research Reports
SPDR Dow Jones Industrial Average ETF (DIA): ETF Research Reports
Invesco DB US Dollar Index Bullish ETF (UUP): ETF Research Reports
iShares MSCI Emerging Markets ETF (EEM): ETF Research Reports
iShares Russell 2000 ETF (IWM): ETF Research Reports
Vanguard Total Stock Market ETF (VTI): ETF Research Reports
Vanguard Dividend Appreciation ETF (VIG): ETF Research Reports
iShares MSCI USA Quality Factor ETF (QUAL): ETF Research Reports
iShares MSCI USA Min Vol Factor ETF (USMV): ETF Research Reports
Vanguard FTSE All-World ex-US ETF (VEU): ETF Research Reports
iShares Russell 1000 Value ETF (IWD): ETF Research Reports
Vanguard FTSE Developed Markets ETF (VEA): ETF Research Reports
