Maybe Some March Madness For These ETFs

The NCAA Tournament starts, though chances are most folks that own a computer or television know that already, even they are not big basketball fans. "March Madness," as it is often referred, is one of the biggest sporting events in the U.S. Perhaps part of the reason for that is because, unlike the Super Bowl, the NCAA is not over and done with in a single day. Rather, it takes more than weeks for the field of 68 to be whittled down to two and for a champion to be crowned.

In theory, this should be good news of media companies and cable providers looking to cash in on the tournament. Investors looking to profit from the NCAA Tournament have two obvious ETF options, but as is the case with the Super Bowl, homework is required before jumping in.

Start with the Market Vectors Gaming ETF (NYSE:BJK). Home to stocks such as Las Vegas Sands (NYSE:LVS), Wynn (NASDAQ:WYNN) and MGM International (NYSE:MGM), BJK should be a beneficiary of legal gambling on the NCAA Tournament. Emphasis on "legal" because there are two cold realities regarding March Madness that pertain directly to BJK.

First, about $100 million is wagered every year in Las Vegas on March Madness. That is nothing for a company like Wynn with a market cap north of $12 billion. Second, while it is estimated that Americans wager several billion dollars every year on NCAA Tournament pools, like it or not, that is considered illegal gambling. Since it is illegal, BJK and its constituents do not benefit from the illicit revenue.

With all that in mind, this will be the sixth March Madness BJK has been around for. For the purposes of this article, 2008 and 2009 were excluded. The reason being is that the ETF's March 2008 plunge was induced by the financial crisis while the fund's March 2009 was brought on by the market bottoming after the crisis.

So starting with 2010, BJK gained an impressive 9.5 percent over the duration of the NCAA Tournament that year. However, less than 60 days after the tournament started, all of the gains had evaporated.

BJK did even better in 2011, surging about 12 percent while the tournament was being played. Sixty days later, the gains had held up well. Last year, BJK was trading within pennies of where it was at the start of the tournament when Kentucky was crowned champion. Sixty days after the start of the tournament, BJK was flirting with prices it had not seen since January.

The other obvious March Madness ETF play is the $124.5 million PowerShares Dynamic Media Portfolio (NYSE:PBS). Time Warner Cable (NYSE:TWC), CBS (NYSE:CBS) and Comcast (NASDAQ:CMCSA) combining for roughly 15 percent of this ETF's bolster the fund's case a valid NCAA Tournament play.

Additionally, PBS and some of its constituents have a history of moving on one-off events. For example, PBS got a lift last year when the Hunger Games movie hit theaters. Not to mention, the ETF was solid performer for nearly all of 2012 on the thesis that media stocks would benefit from increased advertising spending in an election year.

Bottom line: PBS has history on its side, so here is a look at the ETF's past three March Madness performances. In 2010, PBS climbed steadily higher during the tournament. A month after play started, the ETF had gained about 10 percent. A month after that, all of those gains were gone.

In 2011, PBS gained 50 cents while the tournament was played, but the ETF did hold up well for the rest of April and into May of that year. Last year was a rough one for PBS as a March Madness play. The ETF was climbing higher into the start of the tournament only to be taken to the woodshed over the 90 days following the event's conclusion. That said, investors that bought PBS just over $13 in June 2012 are no doubt happy today with an ETF residing above 19.

For more on ETFs, click here.

(c) 2013 Benzinga does not provide investment advice. All rights reserved.