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
|Morningstar ELEMENTS Wide Moat ETN (NYSEARCA:WMW)||0.63|
|Health Care Select Sector SPDR (NYSEARCA:XLV)||0.67|
|Pharmaceutical HOLDRS (NYSEARCA:PPH)||0.68|
|iShares DJ Healthcare Fund (NYSEARCA:IYH)||0.69|
|Vanguard Healthcare (NYSEARCA:VHT)||0.69|
|Most "Overvalued" ETFs According to Morningstar||Price/Fair Value|
|FirstTrust Chindia (NYSEARCA:FNI)||1.26|
|PowerShares Private Equity (NYSEARCA:PSP)||1.18|
|PowerShares Golden Dragon Halter China (NASDAQ:PGJ)||1.14|
|Ishares DJ U.S.Oil Equipment (NYSEARCA:IEZ)||1.13|
|SPDR KBW Capital Markets (NYSEARCA: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.")
Full Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company may hold positions in the ETFs, mutual funds and/or index funds mentioned above.