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

Materials (XLB) vs. Energy (XLE -ETF report) – As crude oil price has staged a strong comeback over the past one month, the battered energy sector is marching ahead recouping all the losses of this year. Further, the surge in oil price and the recent spate of encouraging economic data have given a boost to the material stocks. While both ETFs have a Zacks ETF Rank of 4 or ‘Sell’ rating, XLE is easily beating XLB over the trailing three-month period (read: Crude Back to $40: Can Energy ETFs Sustain Their Rally?).
Winner: XLE
 
Investment Strategies 
 
Equity (ACWI) vs. Dividend (VIG - ETF report) – While both funds have a Zacks ETF Rank of 2, the instability in the financial markets, global growth concerns and lower rates have boosted the demand for dividend-paying stocks since the start of the year. This trend is likely to continue at least in the near term. However, some Fed officials have hinted at a rates hike in April that might dampen the appeal for dividend stocks. On the other hand, rebounding oil prices and a slew of positive developments globally have instilled confidence in the market lately, pushing the equity stocks higher. Notably, VIG has surged 3.8% over the past three months versus loss of 0.6% for ACWI.
Winner: VIG
 
Long-Term Treasury (TLT - ETF report) vs. High-Yield Bond (HYG - ETF report) – As the Fed set the stage for a longer-than-expected lower rate environment in its latest meeting, lower yields will benefit long-term Treasuries but dampen the demand for high yield bonds to shield against rising interest rates. As such, TLT wins with a Zacks ETF Rank of 2 against the Zacks ETF Rank of 4 for HYG.
Winner: TLT
 
Fundamentals 
 
Large Cap (SPY - ETF report) vs. Small Cap (IWM - ETF report) – The U.S. stocks have strongly rebounded from the February 11-lows with major bourses now in the green from the year-to-date look. In fact, small cap stocks led the way higher over the past one-month period but fell behind when considering the three-month performance. As such, SPY rose about 0.4% in the same timeframe, edging out a 5% loss for IWM. Both ETFs have a Zacks Rank of 3 (read: Small Cap ETFs Leading Current Market Rally).
Winner: SPY
 
Value (IWD - ETF report) vs. Growth (QQQ - ETF report) – Given the bouts of volatility and global headwinds, investors’ are seeking stable investments and nothing is better than value investing. This is because value stocks have the potential to deliver higher returns and exhibit lower volatility than their growth and blend counterparts. These have room for upside in the coming months given that IWD has a Zacks ETF Rank of 2 against the Zacks ETF Rank of 3 for QQQ.
Winner: IWD

Elite Eight (March 27)

Among the eight winning ETF teams, the six-month performance was used to decide the winners of each region that should advance to the Final Four.

Monetary Policies - U.S. vs. Dollar – Here we see close competition as PWC winning marginally, having lost 0.65% over the past six months compared to loss of 0.8% for UUP.  

Outperforming Sectors: Utilities vs. Energy – Here, XLU beat XLE by at least a 19% margin in the past six months.

Investment Strategies: Dividend vs. Long-Term Treasury – Here, VIG is the undisputed winner, edging out TLT by more than 200 bps.

Fundamentals: Large Cap vs. Value – Though both funds have been trending upward over the past six months, SPY outpaced IWD by a thin 15 bps (read:Buy-Ranked Large Cap Value ETFs in Focus).

Final Four (April 2)

We come to the last four teams in this playoff tournament and the best in their specific regions. We 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. and Utilities on one side and Dividend vs. Large Caps on the other.

PowerShares Dynamic Market Portfolio (PWC - ETF report) vs. Utilities Select Sector SPDR (XLU - ETF report)

For this ETF faceoff, the U.S. represents PWC and XLU represents the utilities. Below, we have taken a closer look at these funds before deciding on the winner:

PWC – This fund uses the Intellidex selection methodology, which seeks to select U.S. companies with superior risk-return profiles. It holds 100 securities in its basket with a well-diversified portfolio as each of these holds less than 3.7% share. Information technology, consumer discretionary and healthcare are the top three sectors that account for a double-digit exposure each. The fund has amassed $146.8 million in its asset base while trades in paltry volume of under 4,000 shares per day. It charges 59 bps in annual fees and is down 7.6% over the trailing one-year period.

XLU – With AUM of $8 billion, this fund provides exposure to 30 securities by tracking the Utilities Select Sector Index. It is heavily concentrated on the top four holdings at 31.8% of assets. Electric utilities takes the top spot in terms of sectors at 56%, closely followed by multi utilities (37.9%). The product charges 14 bps in annual fees and sees heavy volume of around 14.5 million shares on average. It gained 12.4% over the trailing one-year period (read: Rate Sensitive ETFs to Play Lower Yields).

Winner: Utilities ETF wins and advances toward the final round to take on the winner of the Dividend vs. Large Cap matchup.

Vanguard Dividend Appreciation ETF (VIG - ETF report) vs. SPDR S&P 500 (SPY - ETF report)

For this faceoff, VIG represents dividend and SPY represents large caps. Below, we take a closer look at these funds before deciding on the winner:

VIG – This is the largest and most popular ETF in the dividend space with AUM of $20.1 billion and average daily volume of more than 1.1 million shares. The fund follows the NASDAQ US Dividend Achievers Select Index, which is composed of high quality stocks that have a record of increasing dividend over the past decade. It has diverse exposure across 178 securities with each holding no more than 5% of total assets. However, it has a definite tilt toward industrial and consumer goods with over 22% share each while consumer services (17.9%) and technology (12.9%) round off the top four. The ETF charges 10 bps in annual fees and has added about 0.5% over the past one year (read: Buy Ranked Dividend Growth ETFs in Focus after Fed Meeting).

SPY – This is the most popular and liquid ETF in the large cap space with AUM of over $178 billion and average daily volume of 134.1 million shares. Holdings 506 securities in its basket, the fund is widely spread out across components with none holding more than 3.3% of assets. Information technology, financials, and healthcare are the top three sectors. It charges 9 bps in fees per year and is down 1.4% over the trailing one-year period.

Winner: Dividend ETF wins and will again matchup with Utilities ETF for the championship.

The National Championship (April 4)

For the championship, let’s look at the performance of both ETFs over the past three years. XLU gained 42.5% compared with a 31.4% gain for VIG. This suggests that in the ETF world, Utilities Select Sector SPDR (XLU - ETF report)will likely win the 2016 March Madness championship based on our ranking system and recent performances.