PE Ratio of the Wisdom Tree India Earnings ETF (EPI)Document Transcript
PE Ratio of the Wisdom Tree India Earnings ETF (EPI)There seems to be a fair amout of disagreement regarding the PE ratio of theWisdomTree India Earnings (EPI) ETF. It never ceases to amaze me how often people candisagree over something as simple as a PE ratio, but if people do not share their precisemethod for arriving at their computation of a PE ratio, then you can understand whythere can be disagreement. Some people like to use 12-month trailing earnings, whileothers like to use estimates. I much prefer to just stick to the 12-month trailing figurebecause forward looking projections often turn out to be wrong.The most accurate way to compute the PE ratio of an index ETF like WisdomTree IndiaEarnings (EPI) is to first obtain the PE ratios of the component stocks and then computea weighted sum of the PE ratios based on the index weight of each component to arriveat the overall PE of the ETF. In the case of WisdomTree India Earnings (EPI) most 3rdparty sources will not have the correct PE ratio listed in their system because the ETFholds foreign listed stocks. Moreover, most US based financial sites like Yahoo! andMarketWatch have very poor data for non-US listed securities. Fortunately, Bloomberg’sdata is pretty good for foreign listed stocks. I pulled the PE ratios of the top 10components of EPI from Bloomberg and then computed the weighted PE ratio of the ETFusing a spreadsheet. The results are listed in the table below.From my computation, the weighted average PE ratio of the top 10 components is 17.88according to the Bloomberg PE data. However, the top 10 components only compriseabout 43% of the total assets in the ETF. Therefore, the actual PE ratio of the ETFdepends on the PE ratios of the other 133 stocks held in the ETF. The complete listing ofholdings is at the link below. I did not have time to go through and get the PE ratios forthe other components, and I am not sure if Bloomberg would have data for all 133stocks.http://www.wisdomtree.com/etfs/fund-holdings.asp?etfid=51While I tend to believe that the WisdomTree PE calculation of 15.40 as of 12/31/10 isprobably correct, if my PE estimate of about 18 is more accurate, I still think that is agreat value for an Emerging Markets ETF.