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ETF Spotlight Newsletter
A sampling of research & data on ETFs from AltaVista Research
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Coverage at a glance
No. of ETFs
606

Total Mkt Cap ($bns)

$650.8

Avg. daily value traded ($bns)

$47.8
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October 11, 2010
Greetings!

Below please find the ETF Spotlight newsletter for the week of October 11, containing highlights of the research and data on www.etfresearchcenter.com as well as a recap of the past week's action in the ETF market. 

The focus of this week's edition is Growth-at-a-reasonable-price, or "GARP," ETFs. We've also got a long list of recent NEW COVERAGE, bringing our universe to over 600 equity ETFs. Feel free to share it with others who may be interested. 
 
In this week's issue

technicianGrowth-at-a-reasonable-price ETFs
  • Chart of the week: GARP ETFs
  • Fund Focus: Materials Select Sector SPDR (XLB)
  • Revisions, asset flows & short interest
  • 2011 EPS & long-term growth estimates and PEG ratios  for major ETFs
  • Market monitor - movers & categories
To download the full newsletter click here.
 
Chart of the week
Growth-at-a-reasonable-price, or "GARP" ETFs

Everyone wants to own stocks of fast-growing companies, but the question is, "At what price?"  The price-to-growth, or PEG, ratio, is a common way to adjust valuations for growth prospects. The formula is a security's price-to-earnings (P/E) ratio, divided by the consensus long-term growth rate for earnings (expressed as an integer). Generally, stocks with a PEG ratio of 1.0x or less are said to be selling at "reasonable" multiples, given their growth prospects.

Here we must mention that consensus long-term growth estimates are one of the most routinely biased figures on Wall Street. Nearly any P/E can be "justified" by an overly-optimistic growth forecast. For example, the current LTG forecast for S&P500 firms is 11.1%, despite the fact that since the end of WWII earnings have grown 6.4% annually. Nonetheless there is no evidence that the over-optimism is exaggerated more in some areas than in others, so the PEG ratio is still useful for comparing funds even if the ratio's level is inaccurate.

In any case, this week's chart shows the ETFs with the lowest PEG ratios. Six of the 10 are basic materials-related funds, most selling for single-digit P/E multiples but with forecast growth rates in the upper-teens. Again, those figures may prove too optimistic, but the market seems to be pricing those stocks at low, "peak earnings" multiples, where little if any growth could be expected. So if earnings still have substantial room to grow over the next 3-5 years these funds may in fact be rather cheap.

See the chart and full newsletter here.  

Chart: Growth at a reasonable price ("GARP") ETFs
ETFs with the lowest price-to-growth (PEG) ratios*

*Note: based on 2011E P/E divided by LT growth estimates
Fund Focus
Materials Select Sector SPDR (XLB)Charts1

Sales and earnings are forecast to post healthy gains both this year and next as commodity prices rebound, although margins and return on equity remain well below prior peaks and estimates have been trending in the wrong direction on recent months. In any case, we fail to see why this sector, subject to the same boom-bust forces as Energy firms (XLE), should enjoy a valuation premium given profitability (ROE) that is lower on average.

To download the full newsletter, click here.
 
NEW COVERAGE
We initiated coverage of 75 new ETFs:

For details on any of the funds below, go to our FUND ANALYSIS TOOL on the ETF Research Center and enter the ticker symbol in the toolbox on the right.

Schwab Emerging Markets Equity (SCHE)
Alerian MPL ETF (AMLP)
Global X Silver Miners ETF (SIL)
iShares MSCI Indonesia Investable (EIDO)
iShares MSCI Poland Investable (EPOL)
Schwab Intl Small-Cap Equity (SCHC)
iShares MSCI New Zealand (ENZL)
Global X China Materials ETF (CHIM)
Mars Hill Global Relative Value (GRV)
Global X Lithium ETF (LIT)
First Trust BICK Index Fund (BICK)
iShares MSCI Europe Financial Sector (EUFN)
Vanguard S&P 500 ETF (VOO)
Wisdomtree International Hedged Equity (HEDJ)
First Trust ISE Global Copper (CU)
Global X Brazil Mid Cap ETF (BRAZ)
Emg. Global Shares INDXX India Small Cap (SCIN)
IQ Canada Small Cap ETF (CNDA)
Global X Brazil Consumer ETF (BRAQ)
Emg. Shares DJ Emg. Mkt.s Consumer Titans (ECON)
Market Vectors India Small Caps (SCIF)
Market Vectors Latin America (LATM)
IQ Australia Small Cap ETF (KROO)
Globalshares FTSE Developed (GSD)
Vanguard S&P 500 Growth ETF (VOOG)
Vanguard S&P Mid-Cap 400 Growth (IVOG)
Vanguard S&P Small-Cap 600 Growth (VIOG)
Vanguard S&P Small-Cap 600 (VIOO)
Vanguard S&P Small-Cap 600 Value (VIOV)
Jefferies TR/J CRB Wildcatters E&P (WCAT)
First Trust ISE Global Platinum (PLTM)
iShares MSCI Emg. Mkts. Materials Sector (EMMT)
Globalshares FTSE All-World (GSW)
Globalshares FTSE All-Cap Asia Pacific ex-Japan (GSZ)
iShares MSCI ACWI ex-US Consumer Staples (AXSL)
Market Vectors Egypt Index (EGPT)
iShares MSCI ACWI ex-US Materials (AXMT)
SPDR S&P Russia ETF (RBL)
Globalshares FTSE All-World ex-US (GSO)
iShares MSCI ACWI ex-US Cons. Disrectionary (AXDI)
Wilshire US REIT ETF (WREI)
iShares MSCI ACWI ex-US Telecom Services (AXTE)
iShares MSCI ACWI ex-US Industrials (AXID)
iShares MSCI ACWI ex-US Energy (AXEN)
iShares MSCI ACWI ex-US Health Care (AXHE)
iShares MSCI ACWI ex-US Utilities (AXUT)
Vanguard Russell 2000 Growth (VTWG)
iShares MSCI ACWI ex-US Info Tech (AXIT)
Vanguard Russell 2000 (VTWO)
Vanguard Russell 1000 Growth (VONG)
Vanguard S&P Mid-Cap 400 ETF (IVOO)
Vanguard Russell 2000 Value (VTWV)
Vanguard S&P Mid-Cap 400 Value (IVOV)
Vanguard S&P 500 Value ETF (VOOV)
Vanguard Russell 3000 (VTHR)
Vanguard Russell 1000 (VONE)
One Funds (ONEF)
Wilshire 4500 Completion ETF (WXSP)
Vanguard Russell 1000 Value (VONV)
SPDR S&P Global Nat. Resources (GNR)
Global X China Energy ETF (CHIE)
Emg. Global Shares INDXX India Infrastructure (INXX)
Global X Brazil Financials (BRAF)
IQ South Korea Small Cap ETF (SKOR)
Global X Copper Miners ETF (COPX)
iShares MSCI Ireland Capped (EIRL)
IQ Taiwan Small Cap ETF (TWON)
WCM/BNY Mellon Focused Growth (AADR)
iShares MSCI Emg. Mkts. Financials Sector (EMFN)
Pax MSCI N. American Sustainability (NASI)
Wilshire 5000 Total Market (WFVK)
iShares MSCI USA Index Fund (EUSA)
iShares MSCI ex-US Financials (AXFN)
iShares MSCI Far East Financial Sector (FEFN)
JETS Contrarian Opportunity (JCO)

As always your questions & feedback are most welcome.
 
Sincerely,
 
Michael Krause
AltaVista Research