The National Collegiate Athletic Association (NCAA) Men’s Division I Basketball Tournament kicked in last week, spreading excitement not only in the sports world but also fueling growth in various corners of the economy such as media, advertising, restaurants, hotels and airlines.
As a result, the stock market performance is closely tied to the basketball frenzy that sweeps the country for three weeks. This has brought the ETF world in focus too given that these have revolutionized the investment space.
The NCAA Tournament will see the champion being crowned on April 4, at NRG Stadium in Houston, Texas. True to what it is popularly known as, “March Madness,” works its way up from the round of 64 to ‘Sweet Sixteen’ to be played on March 24, to ‘Elite Eight’, then the ‘Final Four’and ultimately the championship. Since the tournament has reached to the Sweet Sixteen, let’s start the evaluation from this level.
Like the real championship, we have chosen four factors, namely monetary policies, outperforming sectors, investment strategies, and fundamentals. These have lately been hogging investor attention. Then, we have shortlisted 16 ETFs that are popular in the respective segments and fit our four-region criteria. Fortunately, each of these funds has a Zacks ETF Rank making the seeding easier. In case of a tie between ranks, we have considered the three-month performance in selecting the ETF qualifying for the next round.
Monetary Policies
U.S. (PWC – ETF report) vs. Europe (VGK) – Both U.S. and Europe are following diverging policies. The U.S. took a historic turn in December by exiting the loose monetary-policy era and raised interest rates for the first time in nearly a decade. Now, it has dialed back its rate hike projection for this year to two times from four on global growth concerns and increased market volatility. On other hand, the European Central Bank (ECB) this month has pushed the rates deeper in the negative territory to -0.4% from -0.3% in December 2015 and -0.1% in June 2014. Though both PWC and VGK have a Zacks ETF Rank of 3 or ‘Hold’ rating, the former edges out VGK by a wide margin in terms of three-month performance.
Winner: PWC
Gold (GLD – ETF report) vs. Dollar (UUP – ETF report) – The expectation for longer-than-expected cheap money flows in the U.S. will continue to raise the appeal for the gold bullion while lower rates will pull out capital from the country and lead to depreciation of the dollar. However, UUP wins with a Zacks ETF Rank of 2 or ‘Buy’ rating against the Zacks ETF Rank of 3 for GLD (read: ETFs to Watch Post Fed Meeting).
Winner: UUP
Outperforming Sectors
Utilities (XLU – ETF report) vs. Consumer Staples (XLP) – Both utilities and consumer staples outperformed in a low rate environment and both XLU and XLP have a Zacks ETF Rank of 3. However, XLU is leading by a wide margin from a three-month look.
Winner: XLU
