ETF Expert: Are Healthcare ETFs “Undervalued” by 40%?
12 June 2009 at 1:26 pm by Gary Gordon
Fair value may be in the eye of the beholder. And when it comes to Morningstar's assessment of intrinsic worth of exchange-traded funds, bloggers have been less than kind.
Nevertheless, Morningstar makes a valid attempt at determining a price at which… above it, you might sell, below it… you might buy. So it is interesting to note that 4 out of 5 of the most "undervalued" ETFs in the Morningstar system are healthcare ETFs.
|
Most "Undervalued" ETFs According to Morningstar |
||||||
| Price/Fair Value | ||||||
| Morningstar ELEMENTS Wide Moat ETN (WMW) | 0.63 | |||||
| Health Care Select Sector SPDR (XLV) | 0.67 | |||||
| Pharmaceutical HOLDRS (PPH) | 0.68 | |||||
| iShares DJ Healthcare Fund (IYH) | 0.69 | |||||
| Vanguard Healthcare (VHT) | 0.69 | |||||
| Most "Overvalued" ETFs According to Morningstar | Price/Fair Value | |||||
| FirstTrust Chindia (FNI) | 1.26 | |||||
| PowerShares Private Equity (PSP) | 1.18 | |||||
| PowerShares Golden Dragon Halter China (PGJ) | 1.14 | |||||
| Ishares DJ U.S.Oil Equipment (IEZ) | 1.13 | |||||
| SPDR KBW Capital Markets (KCE) | 1.12 | |||||
In fact, for the price-to-fair-value for Vanguard Health Care (VHT) to be 0.69, the current share price of $45 is actually believed to be worth approx $65. That represents the potential for 44% appreciation.
While intrinsic worth a la Morningstar fair value may not be "worth" a whole heck of a lot, it is additional evidence that health care and pharmaceuticals have been seriously overlooked by investors. (See "Forgotten Pharma May Bounce Back With Swine Flu Fears.")
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With nearly 10% unemployment and no health insurance, insurance company revenues, hospital admissions,doctor visits, prescriptions are all down. With gas up all of the above visits are more expensive. I think healthcare etfs are at fair value for the current state of the economy.
As usual, Morningstars heads are stuck in their statistics and the conclusions don't reflect current realities.