Morningstar Rating for ETFs

Morningstar Inc. has a new method of evaluating Exchange-Traded Funds
(ETF). The model first takes Morningstar's fair-value estimates for the
individual stocks in a ETF's portfolio, determines a weighted average, and
compares the result to the market price of the portfolio holdings. Then the
percentage difference between the two suggests whether the ETF is
undervalued or overvalued and by how much.

Morningstar's method is indicating that some popular market sectors like
Energy and natural resources have become too pricey and it is time to
look back at some neglected areas like the financial services sector which
is trading at a discount.

Energy ETFs were about 11% to 13% overvalued at the end of April, while
financials funds were about 9% to 11% undervalued, according to
Morningstar's estimate of fair value of the underlying stocks.

As specific examples, the Financial Select SPDR (XLF) which lost more than
3.6% this year through May 19, was undervalued by 10.7% at the end of
April. At the end of April, the iShares Goldman Sachs Natural Resources
(IGE) and the Energy Select SPDR (XLE) both looked to be overvalued by
more than 13%, according to Morningstar. However, the broad market,
represented by the S&P 500-tracking SPDR (SPY) was undervalued by
4.3% at the end of April and looks inexpensive at this level.