Vanguard Emerging Markets Stock ETF $28.54 (10/6/2008)
Price Paid:
Business Description
$57.16
John Wang
Charts (WSJ.com)
The Vanguard Emerging Markets Stock ETF
seeks to track the performance of the Morgan
Stanley Capital International Emerging Markets
index. The fund employs a passively managed
investment approach by investing all or
substantially all of assets in a representative
sample of the common stocks included in the
MSCI Emerging Markets index. This index
includes approximately 928 common stocks of
companies located in emerging markets around
the world, including China Mobile, Gazprom,
Samsung Electronics, Petroleo Brasileiro and
Vale do Rio Doce.
Underperformance of S&P 500 during the last three
months
Key Ratios (Reuters)
Recent News
Date
News
9/19/2008
Vanguard Emerging Markets ETF
Announces Exchange Change
(Reuters)
9/17/2008
“best off by not chasing [returns
in emerging markets] at all”
(MarketWatch)
8/12/2008
Warring Russia & Roaring Brazil
(ETF Guide)
8/4/2008
Vanguard Takes ETF Turf (WSJ)
VWO
SPY
P/E Ratio
P/E High – Last 5 Yrs.
P/E Low – Last 5 Yrs.
Beta
Price to Sales (TTM)
Price to Book (MRQ)
17.69
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1.58
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3.71
18.53
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1.00
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3.85
Dividend Yield
6.31%
2.50%
Sales (MRQ) vs Qtr. 1 Yr. Ago
Sales (MRQ) vs TTM 1 Yr. Ago
Sales – 5 Yr. Growth Rate
EPS (MRQ) vs Qtr. 1 Yr. Ago
EPS (MRQ) vs TTM 1 Yr. Ago
EPS – 5 Yr. Growth Rate
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Quick Ratio (MRQ)
Current Ratio (MRQ)
LT Debt to Equity (MRQ)
Total Debt to Equity (MRQ)
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Gross Margin (TTM)
EBITD Margin (TTM)
Operating Margin (TTM)
Pre-Tax Margin (TTM)
Net Profit Margin (TTM)
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Return on Assets (TTM)
Return on Assets – 5 Yr. Avg.
Return on Investment (TTM)
Return on Investment – 5 Yr. Avg.
Return on Equity (TTM)
Return on Equity – 5 Yr. Avg.
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Revenue/Employee (TTM)
Net Income/Employee (TTM)
Receivable Turnover (TTM)
Inventory Turnover (TTM)
Asset Turnover (TTM)
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Vanguard Emerging Markets Stock ETF $28.54 (10/6/2008)
Price Paid:
$57.16
John Wang
Advantages (to sell)
• Emerging markets are volatile. When developed markets are good, emerging markets are very good.
When developed markets are bad, emerging markets are horrid.
• VWO has 20.13% exposure to financials.
• VWO lost 50% of its value since we bought last fall at $57.16, which was near the ETFʼs all-time peak of
$57.57. There is no indication that we will be able to recapture the $2,518.56 losses within our
investment horizon.
• With over 900 holdings, upside gains from individual companies are limited.
• As unlisted and private holdings do not have to comply with SEC regulations, there is little transparency
with certain foreign companies. Gazprom is a shady state-owned monopoly and political tool.
• Investing in an ETF relinquishes half the utility we gain from investing in individual stocks. It also
infringes upon our liberty to choose between firms with questionable business practices (Gazprom) and
ones that are socially responsible.
Disadvantages (to sell)
• A diversified equity portfolio should have some exposure to emerging markets. However, 4.8% of our
portfolio is presently invested in SBS, a Brazilian sanitation services firm.
• VWO presently trades at a 0.13% discount to the $31.24 NAV.
• VWO maintains a strong dividend yield of 6.31%, but recent declines in price account for much of this.
• VWO has a low expense ratio of 0.25, making it a better investment than some other emerging markets
ETFs.
Sector Allocations
Holdings
Stocks
Bonds
Sectors
Financials
Basic Materials
Oil & Gas
Telecommunications
Technology
Industrials
Consumer Goods
Consumer Services
Utilities
Health Care
% of Total
20.13%
18.05%
17.86%
10.78%
9.78%
8.62%
5.39%
3.42%
3.12%
1.60%
91.84%
0.00%
Top 10 Holdings (18.55% of Total Assets)
Company
% Assets
Gazprom OAO (EDR)
4.09%
China Mobile Ltd.
2.41%
Petroleo Brasileiro Sa Petrobras
2.21%
PETROBRAS –ON
1.95%
Samsung Electronics
1.64%
AMERICA MOVIL-L
1.43%
Lukoil Company ADR
1.38%
VALE R DOCE –PNA
1.29%
VALE R DOCE –ON
1.09%
Sasol Limited Group
1.06%
Country Diversification (2007)
(% of common stock)
S. Korea – 15.4%
China – 13.8%
Brazil – 12.0%
Taiwan – 11.3%
Russia – 9.1%
South Africa – 6.9%
India – 6.8%
Mexico – 5.1%
Hong Kong – 2.4%
Thesis: Although VWO offers us diversification, exposure to sheer volatility, rapidly cooling markets and
financials indicate that we should cut losses as soon as possible. Limitations in our ability to choose where our
money goes and lack of transparency suggest that we are better off investing elsewhere.