These ETFs Have The Lowest Valuations


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Drew Voros
ETF.com Editor-in-Chief

An ETF with a low price-to-earnings ratio doesn't necessarily mean it's a great investment. It simply means most of the stocks in the fund are trading at low prices compared to their recent earnings.

Looking at the U.S. stock market, it’s generally agreed domestic stocks are relatively expensive―relative to the past and relative to stocks of other countries.

The trailing 12-month price-to-earnings ratio for the S&P 500 is 21.7, according to FactSet, the highest level since the Great Recession, and much higher than historical averages. Over the past 50 years, the S&P 500's trailing P/E ratio has averaged 16.5; over the past 30 years, it’s averaged 19.2; and over the past 10 years, it's averaged 17.1.

There might be a few individual stocks here and there that are trading cheaply, but the same can't be said for the indices that make up most stock market funds.

Fortunately, for value-seeking investors, the ETF universe offers easy access to stocks outside the U.S., where, in many cases, P/E ratios are lower. In fact, the list of cheapest ETFs is made up almost exclusively of international funds, and emerging market ETFs in particular.

Russia & Turkey On The Cheap

The iShares MSCI Russia Capped ETF (ERUS), with its P/E of 7.86, has the distinction of being the U.S.-listed ETF with the lowest price-to-earnings ratio. Concerns about Russia's involvement in Ukraine, Western sanctions and low oil prices have kept pressure on Russian stocks during the past few years.

Some investors also worry about nationalization, where the Russian government takes over companies at the expense of shareholders, as it's done in the past.

Investors unfazed by these concerns have the opportunity to buy Russian stocks at a discount, which could pay off in the long term. In addition to ERUS, the SPDR S&P Russia ETF (RBL), with a P/E of 9.11, and the VanEck Vectors Russia ETF (RSX), with a P/E of 10.03, are two other Russia ETFs trading on the cheap.

The iShares MSCI Turkey ETF (TUR) is another name on the list. Political uncertainty following a failed coup last year, credit rating downgrades, rising interest rates and a plunging currency have come together to weigh on Turkish stocks. In turn, TUR currently has a P/E of 8.29.

China is another emerging market country that has fallen out of favor with investors, for a number of well-known reasons. Last year, financial market headlines were dominated by talk of China's economic slowdown.

The Global X China Financials ETF (CHIX), the CSOP FTSE China A50 ETF (AFTY) and the Guggenheim China Real Estate ETF (TAO) are all trading with P/Es of less than 10.

The Tierra XP Latin America Real Estate ETF (LARE), the Legg Mason Emerging Markets Low Volatility High Dividend ETF (LVHD) and the iShares Europe Developed Real Estate ETF (IFEU) are a few other interesting funds currently trading with low valuations.

For a full list of low-P/E ETFs, see the table below.

Source: ETF.com Screener, powered by FactSet

‘VTEB’ Now A $1 Billion Fund

The Vanguard Tax-Exempt Bond Index Fund ETF (VTEB) has reached a key milestone: $1 billion in total assets under management less than two years since its launch.

VTEB, tracking a market-weighted index of investment-grade municipal bonds, is a newcomer to a segment led by the likes of the $8 billion iShares National Muni Bond ETF (MUB) and the $2.3 billion SPDR Nuveen Barclays Municipal Bond ETF (TFI). VTEB came to market in late 2015, while MUB and TFI launched back in 2007.

But VTEB isn’t particularly novel in its approach or in the exposure it offers relative to its competitors. It’s a vanilla investment-grade muni fund. Where the fund stands out is in its cost.

Like most Vanguard ETFs, VTEB is cheap. With an expense ratio of only 0.09%, the fund costs about a third of MUB’s price tag—0.25% in ER—and a lot less than TFI, with a 0.23% ER. That’s $9 per $10,000 invested for VTEB versus $25 and $23 for the same investment amount, respectively.

VTEB was Vanguard’s first-ever passive muni fund, and it’s designed around the same S&P benchmark underlying MUB. So far this year, these muni bond ETFs have traded largely in a range, looking to recover some of the ground they lost following the U.S. presidential election last November.

Drew Voros can be reached at dvoros@etf.com.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , ETFs


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