Sonya Morris for Morningstar reports an exchange traded fund (ETF) should be judged by the valuation characteristics of the underlying holdings. One key indicator is the price/fair value ratio. To compute the ratio, they calculate the aggregate market price for the ETFs underlying holdings and divide that number by the asset-weighted fair value estimate of those stocks. Above 1.0 equals overvalued, where market price exceeds fair value and under 1.0 says the ETF is cheap.
The Cheap:
- iShares S&P 100 (OEF)
- iShares S&P 500 (IVV)
- Rydex Russell Top 50 (XLG)
- SPDR DJ Global Titans (DGT) (in relation to small and mid-cap stocks.)
The Overvalued:
- iShares Dow Jones US Oil Equipment Index (IEZ)
- SPDR S&P Oil & Gas Equipment & Services (XES)
- Market Vectors Gold Miners (GDX)
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.