Wisdom tree ISEQ 20 ETF relatively new

[galway_blow_in]

I understand that, but would galway_blow_in have meant that THE INDIVIDUAL stocks within this fund would be overvalued, (I.e. If you bought any of them outside of the fund it would be trading at a premium) therefore this fund in its entirety would be overvalued compared to for example a vanguard world ETF fund?

the ETF provider is irrelevant , beit vanguard ishares of wisdom tree , the wisdom tree Russia etf has a PE of around six right now

im judging the index overall , the index has plenty of companies which I think are very good and would be happyt own long term , i just think a PE of 19 is high , especially for a small country

 

[Jim2007]

you refer to a number of different issues there but im only going to address the topic of the thread , let me provide you with two different links , one details the ( dollar denominated ) ishares etf which covers Germany,s DAX , see the PE of the fund ( its 16 )

the other covers the irish market and the PE is 19 , this fund is very similar to the new one launched by wisdom tree

http://finance.yahoo.com/q?s=EWG&ql=1

http://finance.yahoo.com/q?s=EIRL&ql=0

the difference in valuation is just shy of 19%

You are comparing a large cap index to at best a micro index, it is meaningless less!

 

[galway_blow_in]

no idea what you mean , the iseq is an index of large cap irish companies

the DAX is the main index of german large cap companies

the etf,s i provided links to on yahoo finance show both dax and iseq indexes

 

[galway_blow_in]

just in reply to my last post , i realise the ISEQ contains some very small companies but the wisdom tree ETF in question , is made up of large companies , that they would be considered relatively small by international standards is not all that relevant , Austria would not have any larger companies in its main index yet the ishares Austria etf ( EWO ) has a PE of 16 right now

 

[landlord]

you refer to a number of different issues there but im only going to address the topic of the thread , let me provide you with two different links , one details the ( dollar denominated ) ishares etf which covers Germany,s DAX , see the PE of the fund ( its 16 )

the other covers the irish market and the PE is 19 , this fund is very similar to the new one launched by wisdom tree

http://finance.yahoo.com/q?s=EWG&ql=1

http://finance.yahoo.com/q?s=EIRL&ql=0

the difference in valuation is just shy of 19%

....thanks I didn't realise that a fund itself can have a price to earnings ratio.
So you are saying that the DAX fund with a lower PE of 16 is better value than irish market fund with a PE of 19. That makes sense!!
Now for the stupid question....I don't see how you get from PE 16 compared to PE 19 gives a difference in valuation of just shy of 19% ?.....thanks

 

[Sarenco]

are you saying the valuation of a market is always on the money ? , even it is , as someone who tries to find value if I can , id be more comfortable today buying the DAX than the ISEQ , id be more comfortable buying the DAX than the S+P today as well by the way as the S+P has a PE of 19 and the strengthening dollar is likely to hit American corporations earnings to some degree

No, I'm saying that if you say that a particular market, sector or security is under or over valued, using whatever metric you favour, you are taking a different position to the aggregate position arrived at between all buyers and sellers in the market. Obviously everybody can calculate PE ratios so that information is already reflected in stock prices.

 

[Jim2007]

that they would be considered relatively small by international standards is not all that relevant

Well clearly you have a lot to learn when it comes to calculating value and assessing risk! But at the end of the day it is your money to loose or is it the OPs.

 

[joe sod]

Because Ireland is a very small market a few big companies can dominate the index. For example there probably has not been much change in the top 20 companies in the german index as they are global dominant companies in the last 10 years. There has been dramatic change in the Iseq in 10 years. In 2005 the index was dominated by the banks so your portion invested in the banks would have been wiped not as bad as 100% bank shares but still substantial. Now it is dominated by the food companies who are on the crest of a wave but how long can that last, they are trading at very high P/E ratios in the expectation that the trend will continue. But Glanbia and Kerry are not global dominant companies, whereas Bayer, Basf , BMW are, that makes a difference. Even in banking it was much safer to invest in Deutsce bank or HSBC than Bank of Ireland because they are huge diversified banks

 

[galway_blow_in]

No, I'm saying that if you say that a particular market, sector or security is under or over valued, using whatever metric you favour, you are taking a different position to the aggregate position arrived at between all buyers and sellers in the market. Obviously everybody can calculate PE ratios so that information is already reflected in stock prices.

its not always wise to simply follow the market , a follower would have bought the S+P at the start of the year and would be up around 1% today , someone who took a more nuanced view might look at the likes of the DAX at the beginning of the year and they would be up around 16% today , you appear to be saying the market is always right , were those who were selling irish property in mid 2006 wrong , they certainly were in the minority

 

[galway_blow_in]

Well clearly you have a lot to learn when it comes to calculating value and assessing risk! But at the end of the day it is your money to loose or is it the OPs.

slightly glib - reductive reply , are you saying smaller companies ( relatively speaking ) are allowed a higher PE , I pointed to how the Austrian market which contains companies which are no bigger than those which make up the ISEQ , has a PE which is only 16

why exactly is the irish market entitled to a higher PE than the DAX ?

 

[galway_blow_in]

Because Ireland is a very small market a few big companies can dominate the index. For example there probably has not been much change in the top 20 companies in the german index as they are global dominant companies in the last 10 years. There has been dramatic change in the Iseq in 10 years. In 2005 the index was dominated by the banks so your portion invested in the banks would have been wiped not as bad as 100% bank shares but still substantial. Now it is dominated by the food companies who are on the crest of a wave but how long can that last, they are trading at very high P/E ratios in the expectation that the trend will continue. But Glanbia and Kerry are not global dominant companies, whereas Bayer, Basf , BMW are, that makes a difference. Even in banking it was much safer to invest in Deutsce bank or HSBC than Bank of Ireland because they are huge diversified banks

that to me implies the ISEQ should have a lower PE than the DAX as the DAX is made up of giant companies which have for decades , had a global reach

oh and the iseq has not changed as much as you suggest , CRH is still by far the largest component and was ten years ago , AIB is the standout absentee

 

[Sarenco]

its not always wise to simply follow the market , a follower would have bought the S+P at the start of the year and would be up around 1% today , someone who took a more nuanced view might look at the likes of the DAX at the beginning of the year and they would be up around 16% today , you appear to be saying the market is always right , were those who were selling irish property in mid 2006 wrong , they certainly were in the minority

I'm not saying the market is always "right". I'm simply saying the market for publicly traded securities is highly efficient and captures the combined views of all participants in the market as to the appropriate price to assign to all securities at any particular point in time.

 

[landlord]

Galway_blow_in.....

I think Sarenco might be saying, what technique other than price to earnings ratio are are you using to find value that hasn't been already priced into the market?
I think everybody on ask about money.com might be asking that one ha ha !!

 

[galway_blow_in]

I'm not saying the market is always "right". I'm simply saying the market for publicly traded securities is highly efficient and captures the combined views of all participants in the market as to the appropriate price to assign to all securities at any particular point in time.

I tend not to focus at a particular point in time , I see little which suggests the index of irish shares should have a much higher PE than the german DAX , I take a long term view however

the weak euro will benefit Germany more than any other country due to its huge export sector , im happy that the irish economy is doing well but irish equities are richly valued right now , glanbia , paddy power , Ryanair , all richly valued

 

[Sarenco]

Fair enough. I wonder why other market participants do not share your view?

 

[galway_blow_in]

Fair enough. I wonder why other market participants do not share your view?

there are a myriad of reasons why indices are at different price multiples in different countries , Russias market vectors etf is closer to a PE of 5 than ten right now due to the huge drop in oil prices and the weakening of the ruble , its very cheap objectively speaking but because there is likely to be an oil glut for quite some time and because the usa is squeezing Russia from every direction , market makers feel Russia is a waste of time , market makers tend to take a very short term view much of the time

a PE historically is a useful simple measure of value , of course there is more to it than this but when it see the iseq at 19 and the dax at 16 , I know which one im more comfortable putting my money in , id also be more comfortable putting money in the s+p at 19 than the iseq as its the ultimate indice in terms of diversification , liquidity , historical strength

 

[Jim2007]

im happy that the irish economy is doing well but irish equities are richly valued right now , glanbia , paddy power , Ryanair , all richly valued

These are at best micro caps and have no business in the portfolios of the majority of investors, so weather they are under or over valued should not be a concern to most people.

And if you take something like Glanbia, a look at some of the other matrix ratios suggest that it may not be as over priced as you think. Which is precisely why you have to do a lot more work to determine value than just looking at the P/E ratio as you are doing.

 

[galway_blow_in]

These are at best micro caps and have no business in the portfolios of the majority of investors, so weather they are under or over valued should not be a concern to most people.

And if you take something like Glanbia, a look at some of the other matrix ratios suggest that it may not be as over priced as you think. Which is precisely why you have to do a lot more work to determine value than just looking at the P/E ratio as you are doing.

funny how you say glanbia has no place in the portfolio of the majority of investors yet then go on to defend its valuation

anyway , surely a basic valuation like PE can be used by average investors , I mean many wise people believe that the average investor ( and I am one ) is better off owning index funds than individual companies , I would proceed from that basis by suggesting an index fund with a lower PE is likely to be a better buy , afterall , there are tonnes of excellent stocks out there , its merely a matter of buying them at the right time , surely the same applies with index funds ?

the two indexes in question here happen to be the DAX and this ISEQ type wisdom tree fund , were the two indexes in question the more similar sized DAX and the French CAC , would you think the DAX is a better buy as its PE is 16 compared to the CAC which has a PE of 17 , both are large markets by European standards

is your problem with my theory the fact that I am comparing a large European country with a small one

 

[Jim2007]

You cannot use the P/E ratio of an index the same way as for a company because it is a composite, it depends directly on the constituents - if an index is overweighted with financials it will have a low P/E simply because financials tend to have low P/E ratios, nothing to with over or under valuation! By the same token, growth stocks and micro caps tend to have high P/E ratios and so an index constructed of such stocks would be expected to have a high P/E as well.

 

[joe sod]

also with regard to Iseq it has already recovered strongly from the lows it reached in 2011, however the iseq now comprises different companies than it did in 2007 so the recovery is by different companies, the banks are still penny stocks and they were a huge part of the iseq valuation in 2007. Also it has poor diversification, there are no oil companies (exploration does not count), no energy companies (no gas and electricity suppliers), no big pharma as far as I know, no infrastructure like ports, railways and pipelines.