Calculating a stock's price-earnings, or P/E ratio is easy.
Simply divided the stock's price by the trailing 12-month
earnings per share or the EPS estimate for the coming year and
you've got a trailing and forward P/E ratio.
With ETFs, calculating this oft-used valuation metric isn't as
simple and some debate the validity of even doing so, saying an
ETF's P/E isn't as instructive as an individual stock's. There
has even been some controversy surrounding how ETF sponsors
calculate P/E ratios for their funds. Back in 2006, the Wall
Street Journal reported that Barclays (NYSE:
BCS
), then the owner of iShares, was not including
the P/E's of unprofitable companies its ETFs
held
.
For those that want to calculate an ETF's P/E ratio on their
to test its validity, the task is cumbersome. With an index fund,
you'd be forced to gather the P/E's of the index constituents,
then compute a weighted sum based on each stock's weight in the
index to find the ETF's overall weight.
Bottom line: Different fund sponsors employ different
methodologies when coming up with an ETF's P/E ratio. So for the
purposes of this piece we went searching for ETFs currently
holding multiple high P/E stocks or those funds that have a
higher P/E relative to their peer groups.
PowerShares NASDAQ Internet Portfolio (Nasdaq:
PNQI
)
Despite its thin volume, the PowerShares NASDAQ Internet
Portfolio is home to some marquee, high P/E growth stocks and the
ETF
could also make a name for itself by becoming a
possible destination for Facebook
.
For now, PNQI's P/E ratio is almost 30, far higher than the
15.96 offered by the PowerShares QQQ (Nasdaq:
QQQ
). PNQI also sports a higher P/E than its nearest rival, the
First Trust Dow Jones Internet Index Fund (NYSE:
FDN
).
One look at PNQI's holdings explains why. Amazon (Nasdaq:
AMZN
) accounts for over 10% of the fund's weight and that stock
trades for 88 times forward earnings. Rackspace (NYSE:
RAX
), another PNQI top-10 holding, trades for over 46 times forward
earnings.
iShares Nasdaq Biotechnology Index Fund (Nasdaq:
IBB
)
Biotech ETFs
have certainly plenty of days in the sun this
year
and IBB, the largest of the group is no exception. There's a bit
of a cautionary tale here, though. IBB's P/E ratio is 29.3,
according to iShares data. That makes it far more expensive than
the SPDR S&P Biotech ETF (NYSE:
XBI
) and the First Trust NYSE Arca Biotechnology Index Fund (NYSE:
FBT
).
In the case of FBT, that fund has sharply outperformed IBB and
XBI this year and has a lower P/E than both. The performance gap
is too compelling to ignore and investors can have that added
alpha at a superior valuation to IBB.
iShares S&P North American Technology-Software Index
Fund (NYSE:
IGV
)
IGV's 54-stock roster doesn't hold a lot of surprises. Microsoft
(Nasdaq:
MSFT
), Salesforce.com (NYSE:
CRM
) and Oracle (Nasdaq:
CRM
) combine for 23% of the fund's weight. The surprise is a P/E of
30. That's far higher than the PowerShares Dynamic Software
Portfolio (NYSE:
PSJ
), which features more exposure to small-caps. The SPDR S&P
Software & Services ETF (
XSW
), which uses more of an equal-weight approach to the software
space, also features a lower P/E than IGV.
SPDR S&P Semiconductor ETF (NYSE:
XSD
)
The SPDR S&P Semiconductor ETF doesn't do what other
semiconductor ETFs do and that is excessively weight themselves
to Intel (Nasdaq: INTEL), Taiwan Semiconductor (NYSE:
TSM
) and Texas Instruments (Nasdaq:
TXN
).
However, investors will find a higher P/E with XSD than with
the iShares PHLX SOX Semiconductor Sector Index Fund (Nasdaq:
SOXX
). SOXX devotes over a quarter of its weight to the
aforementioned usual suspects of chip ETFs, but the fund has also
sharply outperformed its SPDR rival in 2012.
For more on high P/E/ ETFs, please click
HERE
.
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.