Plus, an update on a gold miner fund, a new India ETF launches, and more.
By Jeffrey Ptak, CFA | 03-10-08 | 10:00 AM | 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
With the market continuing its recent swoon, we saw ETF valuations grow even more attractive over the course of this past week.

When measured by average price/fair value ratio, all 24 of the ETF categories that we track got cheaper between Feb. 28 and March 5. (An ETF's price/fair value ratio expresses the attractiveness of its valuation by comparing its market price with our analysts' estimate of its intrinsic worth; the lower an ETF's price/fair value ratio, the more undervalued it is, and vice versa).

Homebuilder, emerging-markets, financials, and real estate ETFs got hit hardest, while utilities and health-care ETFs escaped the worst of the carnage. Generally speaking, because our equity analysts didn't alter the fair value estimates they'd placed on the stocks that these ETFs hold, these more-attractive valuations are almost entirely the product of market action, i.e., the market sold off, but our analysts' fair value estimates didn't budge, reflecting their belief that these firms' fundamentals hadn't deteriorated any.

Here's a breakdown of the average price/fair values as of March 5 and Feb. 28:

 Recent ETF Price/Fair-Value Changes
 
March 5
Feb. 28
Gold Miners
1.04
1.13
Pacific/Asia ex-Japan Stock
0.86
0.94
Homebuilder
0.69
0.76
Financials
0.74
0.80
Diversified Emerging Markets
0.95
1.01
Diversified Pacific/Asia
0.93
0.98
Real Estate
0.90
0.95
Foreign Large Blend
0.84
0.88
Large Value
0.78
0.82
Long Short
0.81
0.85
Mid-Cap Value
0.84
0.88
Large Blend
0.82
0.86
Large Growth
0.86
0.90
Natural Resources
0.98
1.02
Technology
0.85
0.89
Telecom/Media
0.85
0.89
Consumer
0.83
0.86
Europe Stock
0.88
0.91
Foreign Large Value
0.84
0.87
Industrials/Materials
0.91
0.94
Mid-Cap Blend
0.89
0.92
Mid-Cap Growth
0.94
0.97
Health Care
0.87
0.89
Utilities
0.89
0.90

To survey valuation trends across more than 300 ETFs for yourself, check out our new  Valuation Quickrank tool.

New Analyses and Articles
As you might have heard, we recently 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.

We continued to bring ETFs under coverage last week. Friday, for instance, my colleague Emiko Kurotsu took a closer look at world-stock ETF  iShares S&P Global 100 . The fund tracks an index that pulls in 100 blue chips that, as the name would suggest, do business the world over. That's not exactly a unique formula;  SPDRs Dow Jones Global Titans , which is another fund Emiko  covers, plies a similar approach. So, which is the more-compelling of the two options? Emiko tackles that question head-on in her  report.

Thursday, Emiko gave biotech ETF  iShares Nasdaq Biotechnology  the once-over. Biotech ETFs provide an object lesson in the benefits of diversification. Why? The odds of approval for one drug are typically uncorrelated with the odds of another's. Thus, when you throw a bunch of biotech stocks together, that basket is normally far less volatile than the typical name. That is, the whole exceeds the sum of its parts. But does that make this ETF a "buy"? Emiko sets out to answer that question in her write-up

Earlier last week, senior fund analyst Bill Rocco offered his take on  Vanguard Pacific Stock ETF , an offering that senior fund analyst Gregg Wolper recently profiled in his piece, "When Fund Names Don't Tell the Whole Story." As Bill explains in greater detail in his report, the portfolio is a bit of an odd duck, straddling regions that are terra incognita to many of its diversified Pacific/Asia category rivals. But does that completely negate its charms, which include Vanguard's hallmark low expenses? Bill sums up the case in his  analysis.

In addition to new reports, we also published several "ETF Analyst Notes" last week. Similar to our  "Stock Analyst Notes," we'll use ETF Analyst Notes to provide a quick synopsis of recent events and describe what impact, if any, they might have on our outlook for any ETFs that we cover. For example, we posted this  note to walk through some recent changes equity analyst Vahid Fathi made to his fair value estimates for virtually all of the gold miners he covers, as those changes impact our estimate of  Market Vector Gold Miners fair value.

We also wrote a  note to describe the fallout that  Intel's  recent gross margin forecast revision would have on our fair value estimates for various tech stock ETFs. Our tech analyst Andy Ng summed it up well in a  stock Analyst Note published earlier last week. We reiterated those points in our note, which applied to  iShares S&P GSTI Semiconductor ,  iShares Dow Jones U.S. Technology ,  Technology Select Sector SPDR ,  iShares S&P GSTI Technology , and  Vanguard Information Technology , all of which recently owned 5% or larger stakes in Intel.

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

New Listings
Only one new listing last week--PowerShares India  began trading on Wednesday.

As the name would suggest, the fund will invest in a basket of 50 Indian stocks that constitute its index, the (mother of all tongue-twisters) Indus India Index. You can find the prospectus here and a holdings listing here. The PowerShares fund follows closely on the heels of WisdomTree India Earnings (EPI), a fundamental index-tracking ETF that launched on Feb. 22.

These two ETFs will vie for investors' attention against the incumbent in that space, iPath MSCI India , which boasted $900 million in assets as of Feb. 29. However, the iPath offering is an exchange-traded note (ETN), not an ETF. Also, it ran into well-publicized problems a few months ago when the Indian government essentially forced its issuer, Barclays Bank, to cease issuing new notes, thereby causing the ETN to trade at a huge premium to its net asset value for a time. Though the issue has since been resolved, the episode could create an opening for these upstarts.

All told, ETF providers have launched 30 funds thus far in 2008, with commodity (9), currency (5), and fixed-income (2 muni, 2 taxable) ETFs being most common.

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

  • SPA MarketGrader Sector ETFs (Various): SPA has already listed a half dozen diversified ETFs that bear its name and has four other sector ETFs in the offing. This new crop of sector ETFs--covering the consumer discretionary, consumer staples, financials, and health-care sectors--will follow a similar tack. They'll track proprietary SPA indexes that are based on a computer-driven stock-picking system. That system grades stocks on various attributes, selects the 40 stocks receiving the highest grades, and equally weights them in each portfolio.
  • IShares S&P India Nifty Fifty: This forthcoming ETF will track the S&P CNX Nifty Index which, per the prospectus, consists of the top 50 companies by market cap that trade in the Indian market. It'll join the aforementioned PowerShares and WisdomTree ETFs in what's becoming a more-crowded field of pure-play India funds.
  • Market Vectors Hard Assets Producers and Market Vectors Solar Energy: The first ETF will invest in a "global universe of...companies that produce products and services directly related to the production of commodities, but not the commodities themselves ..." with those firms hailing from the agriculture, water and alternative energy, base and industrial metals, energy, forest products, and precious metals industries. The second will invest in firms that produce and distribute solar power (go figure).
  • Capital West Oklahoma: We blogged about this ETF (which is sure to be greeted like manna from heaven by the behavioral finance wonks of the world...oh, how they revel in our mistakes). It will invest in firms headquartered in the Sooner state.

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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