In ETF March Madness, All Investors Win
With March Madness in full swing, we thought it would be interesting to see just how the world of ETFs would look if it were an NCAA tournament bracket.
As you no doubt have heard, there is a little college basketball tournament taking place across the nation, and although the reported $10 billion-plus TV deal that comes with it is nothing to scoff at, the idea of an ETF tournament makes a ton of sense. After all, the ETF market is now nearly $1.5 trillion in size.
Before I continue, I wanted to point out that we’re not the first to come up with the idea of applying the bracket idea to things other than college basketball. People have put together brackets on everything from famous movies to famous desserts. Even the idea of an ETF bracket has been done already by BlackRock.
The goal of this blog is not to pick winners, especially not those ETFs poised to provide the best returns over the next five days or five years, but rather to look at how different ETFs would fit into the common definitions used to segment college basketball programs in the bracket vernacular if we were trying to determine which ETFs would see the largest inflows over the next year.
If we were trying to determine which ETFs, on a percentage basis, were likely to be the big breadwinners—the ETFs to grow the most over the course of 2013—how would guys like Charles Barkley and Rex Chapman describe different funds?
These are the ETF equivalents of schools like Duke, Kansas and Kentucky (well, maybe not after that first-round exit in the NIT). In other words, these are teams that are perennial powerhouses whose ranking in the tournament is usually a big fat No. 1, with a margin of error of 2 at most.
The ETFs that fit this mold are easy to spot.
The SPDR S&P 500 ETF (NYSEArca: SPY) is the one that jumps off the page at you. Not only is it the oldest ETF on the market, it’s more than twice as large as the next-biggest ETF on the market, the SPDR Gold Shares (NYSEArca: GLD).
SPY also tracks what is, regardless of its flaws, perhaps the most widely used benchmark in the world. As a result, when money is moving into and out of ETFs, SPY is the bellwether ETF. For SPY to end the year as the leader in inflows would surprise no one, just as a Duke national championship wouldn’t come as a shock to anyone who hasn’t been living under a rock since 1980.
GLD would certainly fit this billing as well, as would the Vanguard FTSE Emerging Markets Index ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM). In fact, VWO and EEM might be the perfect parallel for Duke and North Carolina. One, North Carolina/EEM, burst on the scene much earlier than the other, Duke/VWO, and yet both are now powerhouses in every sense of the word. As 2013 draws to a close, nobody in their right mind would be surprised to see either fund at the top of the inflows list.
The Mid-Conference Stalwarts
The schools that typically fall into this group are those that play in what is viewed as a smaller conference, such as the PAC-12. They may also be teams that play in what is perceived to be a big conference, like the Big-10, but are never considered to be a powerhouse.
Schools like Arizona, Wisconsin and West Virginia come to mind here. The ETFs that fit in this group would therefore be solid, if unspectacular, asset gatherers whose asset tallies are above $10 billion, but well below $40 billion.
Funds in this group tend to be a bit more specialized, like the SPDR S&P Dividend ETF (NYSEArca: SDY), which favors dividends; the iShares Russell 1000 Growth Index Fund (NYSEArca: IWF), which is a large-cap growth fund; or the Vanguard REIT ETF (NYSEArca: VNQ).
Our annual fixed-income conference is coming up in a little more than a week and I can’t wait.
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