Cheap ETFs: Should You Be Looking At Book Value?
25 September 2008 at 11:45 am by Gary Gordon
For a while there, the world began to wonder if we were "waiting on Godot." Would Congressional leaders come to terms with Paulson this week? Would they come to terms at all?
So now that a deal has been hammered out, and financial stocks have responded most favorably, what other segments of the economy surged on 9/25? Would you believe telecom and utilities had outpaced the general marketplace?
The rationale here might be a return to yield-hunting. With financials, utilities and telecom being the 3 highest yielding economic sectors, the government’s rescue package may be encouraging folks to revisit dividend-paying stocks.
Telecom investors might argue differently, however. They may feel that the 36% losses over 1-year are overblown… and that now’s the time to get companies that are selling at a small premium over book value.
In fact, according to Yahoo Finance, the major sector P/B ratios (excluding the unknowable financial sector) break out as follows:
| Price-To-Book Ratio (P/B) | |||||
| ishares Dow Jones Telecom (IYZ) | 1.27 | ||||
| SPDR Select Health Care (XLV) | 1.42 | ||||
| SPDR Select Consumer Discretionary (XLY) | 1.83 | ||||
| SPDR Select Utilities (XLU) | 1.84 | ||||
| SPDR Select Materials (XLB) | 2.05 | ||||
| SPDR Select Energy (XLE) | 2.31 | ||||
| SPDR Select Industrials (XLI) | 2.66 | ||||
| SPDR Select Technology (XLK) | 2.82 | ||||
| SPDR Select Consumer Staples (XLP) | 2.84 | ||||
Health Care (XLV) may be the ultimate play, based on a defensive posture, book value and 2008 momentum. Technology (XLK) may be another, based on book values that haven’t been this low since the mid-90s.
Yet we come back to Telecom (IYZ) because it appears to have been an abandoned child for years. It barely profited in the bull market; it got slammed in the bear.
One of the problems with the iShares Dow Jones Telecom Fund (IYZ), though, is its heavy reliance on 2 companies in AT&T and Verizon. We can "hear you now," of course; nevertheless, their stocks haven’t performed.
In truth, telecom is a combination contrarian play (i.e. nobody wants to own telecom stocks) and a low P/B alternative. Oh yeah… and an annual yield that’s roughly 100 basis points higher than the pack.
If telecom doesn’t fit into your thinking because of the new world of regulation, you might be intrigued by "ETFs for Obama, ETFs for McCain." I’ve given 5 ideas for each… though some of the choices may surprise you.
Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.
