DATAQUEST

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William J. Bernstein

What's Cheap

It is helpful to know what's cheap, and what's not, in the global marketplace. Efficient Frontier regularly offers valuation data on various global index and closed end funds . Tabulated below are the DFA/Vanguard/Wilshire index fund data (from Morningstar Principia) as of 6/30/98.

	Month		Tot Ret	Tot Ret	Std
	End	Tot Ret	Annlzd	Annlzd	Dev	P/E	12 Mo	P/B	P/C	Med Mkt
Fund Name	NAV	12 Mo	3 Yr	5 Yr	3 Yr	Ratio	Yield	Ratio	Ratio	Cap $MM
Acorn International	21.74	11.59	15.67	13.5	12.1	32	2.31	8.5	16.8	972
American Cent Global Gold	5.8	-31.72	-19.56	-12.01	27.63	37.9	1.08	2.2	16.8	1749
American Cent Global Nat Res	11.5	-4.23	8.6	-	12.2	24.8	1.69	2.9	12.3	20250
DFA Continental Small Compny	19.1	30.61	15.45	16.5	12.87	25	1.23	3	8.5	506
DFA Emerging Markets	8.18	-37.1	-8.47	-	19.4	23.5	3.19	4.1	10.7	1909
DFA Intl High Book to Market	14.53	4.9	10.25	10.74	12.68	28.3	1.84	2.1	9	10660
DFA Intl Small Cap Value	8.09	-14.9	-3.5	-	12.57	22.5	1.42	1.4	10.5	233
DFA Intl Value	12.52	4.8	10.17	-	12.67	28.6	1.86	2.2	10.4	6666
DFA Japanese Small Company	8.94	-45.56	-22.38	-17.36	26.85	31.4	1.17	1.3	13.2	214
DFA Large Cap International	16.33	7.8	12.12	10.45	13.39	30.1	1.51	4.7	13.4	27961
DFA Pacific Rim Small Compny	5.85	-59.01	-20.42	-9.29	24.23	11.4	4.98	1.2	14.4	145
DFA U.S. 6-10 Small Company	15.89	16.66	19.35	16.58	17.81	25.1	1.99	3.8	18.7	424
DFA U.S. 6-10 Value	22.38	20.12	23.35	20.43	15.48	21.7	2.42	1.9	14.3	332
DFA U.S. 9-10 Small Company	12.37	18.07	19.18	19.05	18.91	22.8	0.18	3.3	17	149
DFA U.S. Large Cap Value	21.3	28.22	26.32	19.78	15.61	17.5	2.7	2.1	10.3	9194
DFA U.S. Large Company	33.63	30	29.93	22.84	15.15	30.4	1.25	7.2	20.5	44657
DFA United Kingdom Small Co	28.05	17.89	15.92	13.96	11.59	19.7	2.73	4.9	11.2	283
DFA/AEW Real Estate Secs	14.51	8.33	18.18	11.28	12.15	24.6	5.17	1.7	15.9	1148
Schwab 1000 Inv	31.02	30.14	28.98	21.81	14.89	30.5	0.85	7	21.1	31495
Schwab International Idx Inv	15.2	8.53	13.14	-	12.95	30.1	1.01	4.8	13.1	25362
Schwab Small Cap Index Inv	18.58	17.58	19.14	-	18.06	25.6	0.34	4.2	19	776
Scudder Latin America	22.58	-17.54	13.92	11.53	26.9	16.7	1.05	2.1	16.6	4638
Vanguard Index 500	105.3	30.05	30.13	22.94	15.2	30.6	1.25	7.3	20.8	44657
Vanguard Index Extend Mkt	33.21	23.76	22.96	18.35	16.18	27.5	1	4.3	19.9	1640
Vanguard Index Growth	27.61	34.73	33.26	25.18	17.29	36.9	0.83	10.7	25.4	67928
Vanguard Index Sm Cap Stk	24.69	16.94	20.07	17.04	17.12	24.7	1.06	3.9	18.6	740
Vanguard Index Value	22.84	24.94	26.76	20.51	14.24	22.5	1.56	3.3	14.8	21230
Vanguard Intl Eqty Emerg Mkt	8.35	-37.89	-6.76	-	20.76	16.8	2.75	3.1	12.5	3216
Vanguard Intl Eqty European	25.53	37.43	27.14	23.22	13.64	29.1	1.44	5.6	12	29254
Vanguard Intl Eqty Pacific	7.24	-35.22	-11.19	-5.94	16.14	33.4	1.24	2.2	13.5	11205
Vanguard Spec Energy	23.81	6.48	19.16	12.67	18.39	25.4	1.32	3	10	4612
Vanguard Spec Gold&Prec Mets	6.58	-33.02	-16.3	-9.51	24.93	35.6	2.13	2.5	16.6	1495
Vanguard Spec Utilities Inc	15.56	26.44	18.07	11.9	10.66	21.8	3.63	2.9	8.4	5454
Vanguard Special REIT Index	13.18	7.74	-	-	-	26.7	5.9	1.7	16.5	1267
Wilshire Target Lrg Gr Inv	30.36	32.09	31.97	24.19	18.26	35.2	0.18	9.4	24.2	60764
Wilshire Target Sm Gr Inv	16.33	9.55	13.96	13.49	19.21	25	0	4.3	21.9	933
Wilshire Target Sm Val Inv	16.88	19.13	19.81	13.79	11.4	19.6	1.98	2.3	13.4	768

What is striking are the dramatically higher multiples commanded by the equity of domestic and European stocks relative to that of the Emerging and Far Eastern markets, and the premium commanded by large stocks of all categories.
This reflects the spectacular/dismal respective returns in these areas over the past decade. The same phenomenon is mirrored in the valuations of foreign closed end funds (also from Morningstar Principia). I've arranged the cheapest funds by price/book,:

			Price/
		P/E	Cash	P/B	Med Mkt	Turnover	Exp	Income
Fund Name	Prem/Disc	Ratio	Flow	Ratio	Cap $MM	Ratio	Ratio	Ratio
Korea Equity	21.5	10.1	3.9	0.4	87	53	1.89	-0.73
Brazilian Equity	-20.3	7.3	8.7	0.5	241	69	1.86	-0.62
Fidelity Advisor Korea	10.2	11.7	5.3	0.6	211	51	1.88	-0.64
Templeton Vietnam and SE Asia	-12.3	6.6	11.3	0.7	4508	4	1.47	2.62
Brazil Fund	-23.4	8	7.6	0.8	355	6	1.46	1.91
Korean Investment	27.7	13.4	3.8	0.8	380	32	2.11	-0.73
Templeton China World	-14.4	8.8	12.7	1	1902	14	1.65	2.14
Latin America Smaller Co	-20.3	21.2	-	1.1	220	39	2.3	-0.08
Templeton Dragon	-12.6	8.3	12	1.1	4508	9	1.5	1.93
Korea Fund	11.9	15.4	3.5	1.3	1068	13	1.63	0.46
Singapore Fund	7.7	10.8	11.6	1.4	402	79	1.87	-0.29
Jardine Fleming China Region	-18.4	10.5	16.8	1.5	1747	44	2.18	0.26
China Fund	-10.4	11.6	19.4	1.6	1024	41	2.56	0.49
Argentina Fund	-20.9	12.6	10.2	1.7	1716	19	1.9	2.11
Greater China	-16.5	14.1	19.8	1.7	1554	37	2.07	0.65
Japan Equity	28.2	27.3	10.3	1.8	4190	62	1.03	-0.13
Asia Pacific	-7.2	13.4	13.1	1.9	5738	43	1.57	0.43
Chile Fund	-19.8	14.5	9.2	1.9	2139	36	3.34	0.38
Latin America Equity	-22.7	13.9	9.5	1.9	3571	112	1.89	0.77
Latin America Investment	-22	13.6	9	2	3174	50	1.7	1.47
Morgan Stan Asia-Pacific	-18.9	23.9	14.1	2	4939	28	1.39	0.16
Thai Capital	67.7	36.7	12	2	578	33	2.22	0.15
Austria Fund	-16.7	25	7.2	2.2	2032	19	1.71	0.07
First Australia	-21.2	20.7	12.5	2.2	4245	270	1.39	1.68
Central European Value	-23.3	22.1	8.8	2.3	879	56	2	-0.87
Morgan Stan Russia & New Eur	-15.2	21.7	-	2.3	551	71	2.5	-1.27
Emerging Mexico	-15.1	17.8	12	2.4	1700	71	1.64	0.6
Mexico Equity & Income	-20.3	20	10	2.4	4696	127	1.49	3.29
Fidelity Advisor Emerg Asia	-10.4	15.6	15	2.5	4091	55	1.71	0.03
Mexico Fund	-23.9	20.5	12.5	2.5	3152	8	0.91	1.8

price/earnings,,

			Price/
		P/E	Cash	P/B	Med Mkt	Turnover	Exp	Income
Fund Name	Prem/Disc	Ratio	Flow	Ratio	Cap $MM	Ratio	Ratio	Ratio
Templeton Vietnam and SE Asia	-12.3	6.6	11.3	0.7	4508	4	1.47	2.62
Brazilian Equity	-20.3	7.3	8.7	0.5	241	69	1.86	-0.62
Brazil Fund	-23.4	8	7.6	0.8	355	6	1.46	1.91
Templeton Dragon	-12.6	8.3	12	1.1	4508	9	1.5	1.93
Templeton China World	-14.4	8.8	12.7	1	1902	14	1.65	2.14
Pakistan Investment	-11.9	9	8.7	2.9	279	15	2.2	-0.36
Korea Equity	21.5	10.1	3.9	0.4	87	53	1.89	-0.73
Jardine Fleming China Region	-18.4	10.5	16.8	1.5	1747	44	2.18	0.26
Singapore Fund	7.7	10.8	11.6	1.4	402	79	1.87	-0.29
China Fund	-10.4	11.6	19.4	1.6	1024	41	2.56	0.49
Fidelity Advisor Korea	10.2	11.7	5.3	0.6	211	51	1.88	-0.64
Argentina Fund	-20.9	12.6	10.2	1.7	1716	19	1.9	2.11
Jakarta Growth	64.9	12.8	13.3	2.7	215	44	1.94	0.7
Indonesia Fund	92.1	13.1	15.1	3	301	35	1.91	0.1
Asia Pacific	-7.2	13.4	13.1	1.9	5738	43	1.57	0.43
Korean Investment	27.7	13.4	3.8	0.8	380	32	2.11	-0.73
Latin America Investment	-22	13.6	9	2	3174	50	1.7	1.47
Latin American Discovery	-11.5	13.6	24.2	5.3	4896	259	1.82	-0.07
Latin America Equity	-22.7	13.9	9.5	1.9	3571	112	1.89	0.77
Greater China	-16.5	14.1	19.8	1.7	1554	37	2.07	0.65
Chile Fund	-19.8	14.5	9.2	1.9	2139	36	3.34	0.38
Malaysia Fund	54	14.8	14.7	3.3	1098	50	1.29	-0.18
Korea Fund	11.9	15.4	3.5	1.3	1068	13	1.63	0.46
Fidelity Advisor Emerg Asia	-10.4	15.6	15	2.5	4091	55	1.71	0.03
Emerging Mexico	-15.1	17.8	12	2.4	1700	71	1.64	0.6
First Philippine	-11.7	17.8	17.8	2.8	1909	15	1.75	-1.1
Asia Tigers	-11	19	16.1	4.2	4901	78	1.65	0.71
Mexico Equity & Income	-20.3	20	10	2.4	4696	127	1.49	3.29
Mexico Fund	-23.9	20.5	12.5	2.5	3152	8	0.91	1.8
First Australia	-21.2	20.7	12.5	2.2	4245	270	1.39	1.68

and price/cash flow.

			Price/
		P/E	Cash	P/B	Med Mkt	Turnover	Exp	Income
Fund Name	Prem/Disc	Ratio	Flow	Ratio	Cap $MM	Ratio	Ratio	Ratio
Korea Fund	11.9	15.4	3.5	1.3	1068	13	1.63	0.46
Korean Investment	27.7	13.4	3.8	0.8	380	32	2.11	-0.73
Korea Equity	21.5	10.1	3.9	0.4	87	53	1.89	-0.73
Turkish Investment	-15.6	31.2	4.6	11	890	51	1.91	2.57
Fidelity Advisor Korea	10.2	11.7	5.3	0.6	211	51	1.88	-0.64
Germany Fund	-13.6	30.4	6.1	4.5	32627	81	1.19	0.49
Emerging Germany	-12.3	31.5	6.5	4.1	32627	40	1.51	0.76
Austria Fund	-16.7	25	7.2	2.2	2032	19	1.71	0.07
Scudder Spain and Portugal	-9.8	29.1	7.2	4.7	9157	115	1.74	0.54
Brazil Fund	-23.4	8	7.6	0.8	355	6	1.46	1.91
Growth Fund of Spain	-8.6	27.5	8.4	3.5	10190	29	1.22	1.29
Italy Fund	-18.3	36.1	8.5	6.4	10258	16	1.29	0.61
Brazilian Equity	-20.3	7.3	8.7	0.5	241	69	1.86	-0.62
New Germany	-13.5	29.6	8.7	4.7	5236	76	0.99	0.41
Pakistan Investment	-11.9	9	8.7	2.9	279	15	2.2	-0.36
Central European Value	-23.3	22.1	8.8	2.3	879	56	2	-0.87
Latin America Investment	-22	13.6	9	2	3174	50	1.7	1.47
Spain Fund	-14.5	28.1	9.1	3.9	16646	45	1.55	0.38
Chile Fund	-19.8	14.5	9.2	1.9	2139	36	3.34	0.38
Latin America Equity	-22.7	13.9	9.5	1.9	3571	112	1.89	0.77
Central European Equity	-19	22.5	9.9	4.1	1510	68	1.1	0.32
Mexico Equity & Income	-20.3	20	10	2.4	4696	127	1.49	3.29
Argentina Fund	-20.9	12.6	10.2	1.7	1716	19	1.9	2.11
Japan Equity	28.2	27.3	10.3	1.8	4190	62	1.03	-0.13
France Growth	-16.1	32.8	10.9	4.2	17758	80	1.48	0.64
Portugal Fund	-20.9	34.7	11.1	5.4	3763	72	1.56	0.23
Irish Investment	-12.8	21.5	11.3	7.3	3717	11	1.54	0.78
Templeton Vietnam and SE Asia	-12.3	6.6	11.3	0.7	4508	4	1.47	2.62
Thai Fund	104.6	-	11.4	2.9	802	24	1.43	1.42
Singapore Fund	7.7	10.8	11.6	1.4	402	79	1.87	-0.29

What can be plainly seen is that the equity of many countries -- particularly Korea, Russia, and Brazil, are on fire sale. And, in each case, for good reason. It seems likely that the enormous economic and political risks in these markets are more than adequately priced into their equity prices, providing investors with a classic tableau of risk and expected return.
One should not read too much into the above data, however. There is certainly a statistical association between high/low present valuations, high/low prior returns, and low/high future returns. Is it money in the bank? Not by a long shot. More than anything else, the data is a shot across the bow of those expecting a repeat of the past decade in the global capital markets. Caveat emptor.

copyright (c) 1998, William J. Bernstein