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MktNeutral.com (http://mktneutral.com) seeks to promote market neutral arbitrage trading strategies by offering data services, analytical tools, educational resources, and social networking to traders and investors who would like to better manage their risk through market neutral trading.
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  • PE Ratio of the Wisdom Tree India Earnings ETF (EPI) 1 comment
    Feb 11, 2011 1:31 AM | about stocks: EPI
    There seems to be a fair amout of disagreement regarding the PE ratio of the WisdomTree India Earnings (NYSEARCA:EPI) etf. It never ceases to amaze me how often people can disagree over something as simple as a PE ratio, but if people do not share their precise method for arriving at their computation of a PE ratio, then you can understand why there can be disagreement. Some people like to use 12-month trailing earnings, while others like to use estimates. I much prefer to just stick to the 12-month trailing figure because forward looking projections often turn out to be wrong.

    The most accurate way to compute the PE ratio of an index ETF like WisdomTree India Earnings (EPI) is to first obtain the PE ratios of the component stocks and then compute a weighted sum of the PE ratios based on the index weight of each component to arrive at the overall PE of the ETF. In the case of WisdomTree India Earnings (EPI) most 3rd party sources will not have the correct PE ratio listed in their system because the ETF holds foreign listed stocks. Moreover, most US based financial sites like Yahoo! and MarketWatch have very poor data for non-US listed securities. Fortunately, Bloomberg's data is pretty good for foreign listed stocks. I pulled the PE ratios of the top 10 components of EPI from Bloomberg and then computed the weighted PE ratio of the ETF using a spreadsheet. The results are listed in the table below.



    From my computation, the weighted average PE ratio of the top 10 components is 17.88 according to the Bloomberg PE data. However, the top 10 components only comprise about 43% of the total assets in the ETF. Therefore, the actual PE ratio of the ETF depends on the PE ratios of the other 133 stocks held in the ETF. The complete listing of holdings is at the link below. I did not have time to go through and get the PE ratios for the other components, and I am not sure if Bloomberg would have data for all 133 stocks.

    www.wisdomtree.com/etfs/fund-holdings.asp

    While I tend to believe that the WisdomTree PE calculation of 15.40 as of 12/31/10 is probably correct, if my PE estimate of about 18 is more accurate, I still think that is a great value for an Emerging Markets ETF.

    Themes: india wisdomtree Stocks: EPI
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  • Thomas Anantharaman
    , contributor
    Comment (1) | Send Message
     
    The correct way to compute the P/E is to compute the total (weighted) price and total earnings seperately and then take their ratio. You get the same result if you average the inverse of P/E in your spreadsheet (sometimes called the weighted harmonic mean P/E).
    6 Jan 2013, 02:31 PM Reply Like
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