Plus, a hedge-fund replicator is born, 20 ETFs die on the vine, and more.
By Jeffrey Ptak, CFA | 02-29-08 | 07:00 PM | Email Article

Following is a quick synopsis of goings-on in the ETF industry, including our big-picture view of the ETF landscape, a rundown of recent ETF analyses, feature articles, and blog postings, along with links to ETFs that recently launched.

Jeffrey Ptak, CFA, is head of global manager research for Morningstar.

Big Picture
We're still seeing values aplenty in ETF land. Our equity analysts cover the holdings of 300-plus stock ETFs comprehensively enough for us to estimate those funds' fair values. Of those ETFs, nearly two in three were trading at least 10% below what we think they're worth, and nearly one in three at a 15% or greater discount. Fewer than 30 ETFs were trading at, or slightly above, our fair value estimates, with most of those names being the usual suspects in the energy-, commodity-, and metals-related areas.

There weren't any huge moves on our list this week, a trend that essentially mirrors the broader backdrop, as the U.S. stock market spurted to gains earlier in the week, only to give them back amid nagging concerns about the economy and the depth of the housing spiral. To briefly sum up, banks and utilities got a little cheaper while energy- and commodity-related fare got a tad richer still.

There remains a sharp bifurcation in the valuation of higher- and lower-quality stock ETF portfolios. For instance, if you segment our ETF coverage universe by percentage of wide-moat holdings, funds in the top quintile (that is, ETFs that own the biggest stake in blue-chip stocks) are trading at a 17% discount, on average, to what we think they're worth. By contrast, ETFs in the bottom-quintile (i.e., those that hold nary a wide-moat name) are only 5% undervalued.

But don't take our word for it. Morningstar.com Premium Members can survey valuation trends across our coverage universe using our new  Valuation Quickrank tool.

New Analyses and Articles
As you might have heard, this week we launched our new-and-improved  ETF Analyst Reports on Morningstar.com. Those reports are available to Premium Members. If you're not a Premium Member yet, check out our recent piece, "This Low Cost, High-Yielding ETF Looks Like a Bargain," in which you'll find a sample ETF Analyst Report. To see more ETF analyses, simply take a free, 14-day Premium Membership trial.

In addition to this initial wave of analyses (more than 150 reports in all), we continue to bring new ETFs under coverage. For instance, on Thursday my colleague Emiko Kurotsu offered her take on one of the ETF industry's best-selling funds in 2007,  Claymore/BNY BRIC . That ETF soared to a 67% gain last year behind strong-faring energy- and commodity-related holdings such as Brazilian iron-ore miner  Companhia Vale do Rio Doce . But is it a good value at these levels? Emiko takes a closer look in  her report.

And today Emiko examined  Vanguard Mega-Cap Value ETF , a newly minted fund that targets blue-chip stocks that look inexpensive on a relative basis. (The fund's index uses dividend yield, book/price, and earnings/price ratios to screen names.) Generally speaking, we're seeing values aplenty among less-risky, high-quality stocks, which the market seems to have left for dead. But does that make this fund a "buy"? Emiko takes a crack at answering that question in this report.

Blog Roll
Here are some of the topics we've covered recently in our ETF-related blog, "Basis Pointing."

New Listings
Although new ETF listings have slowed from last year's blistering pace, there are still plenty of funds crossing the transom. For instance, ETF providers have launched 29 funds thus far in 2008, with commodity (9), currency (5), and fixed income (2 muni, 2 taxable) ETFs being most common. Following is a tally of ETFs and ETNs that began trading in the last few weeks (we've linked to the relevant prospectus whenever possible):

Commodity/Currency

  • DB Gold Double Short ETN DZZ (2/28/08 inception date)
  • DB Gold Double Long ETN DGP (2/28/08)
  • DB Gold Short ETN DGZ (2/28/08)
  • United States Gasoline UGA (2/26/08)
  • Elements Euro/U.S. Dollar ETN ERE (2/21/2008)
  • Elements Australian Dollar/U.S. Dollar ETN ADE (2/21/2008)
  • Elements British Pound/U.S. Dollar ETN EGB (2/21/2008)
  • Elements Canadian Dollar/U.S. Dollar ETN CUD (2/21/2008)
  • Elements Swiss Franc/U.S. Dollar ETN (2/21/2008)
  • Opta Lehman Commodity Pure Beta Total Return ETN RAW (2/20/2008)
  • Opta Lehman Commodity Pure Beta Agricultural Total Return ETN EOH (2/20/2008)

Fixed Income

  • Market Vectors Lehman AMT-Free Short Muni SMB (2/22/2008)
  • Claymore U.S. Capital Markets Bond UBD (2/12/2008)
  • Claymore U.S. Capital Markets Micro-Term Fixed Income ULQ (2/12/2008)

Hybrid

  • Claymore U.S.-1-The Capital Markets Index UEM (2/12/2008)

Stock

  • RevenueShares Large Cap RWL (2/22/2008)*
  • RevenueShares Small Cap RWJ (2/22/2008)*
  • RevenueShares Mid Cap RWK (2/22/2008)*
  • WisdomTree India Earnings EPI (2/22/2008)
  • Opta S&P Listed Private Equity Net Return ETN PPE (2/20/2008)
  • SPDR S&P International Dividend DWX (2/12/2008)

* For some color on these ETFs, see our recent blog posting, "...and a Few Fundamental Index ETFs That Make Us Shake Our Head."

ETF Pipeline
Here are some of the most noteworthy ETF filings that providers have made in the past few weeks:

  • IQ Alpha Hedge Composite: This would be the first hedge fund replication ETF to enter the market. We wrote about this complex fund in our ETF blog, "Basis Pointing."
  • ProShares (Various): ProShares continues to flood the zone, this time registering a raft of leveraged all-market and foreign stock ETFs along with various leveraged short all-cap, foreign diversified, and country ETFs.
  • Claymore Global Solar Energy: This ETF will track an index composed of approximately 25 stocks "selected based on the relative importance of solar power within the company's business model." Think solar product and equipment makers and their suppliers.

Taking Stock
Want to know how some of the most popular ETFs have fared? This performance summary should whet your appetite.

If it's the leaders and laggards that interest you, then give our "best/worst performers" list a look.

Finally, looking beyond ETFs to the benchmarks and industries themselves, you can find a wealth of performance data on Morningstar.com, including performance stats by indexes, sectors, and industries. Also, be sure to check out our Quicktake reports for the Dow, S&P, Russell 2000, and Nasdaq Composite indexes.

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Jeffrey Ptak, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.
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