This article provides an overview of Preston and Stigâ€™s interview with Wesley Gray, an Executive Managing Member from the asset management company Alpha Architect that specializes in Quantitative Value ETFs. This is the second half of the interview.

This article and podcast answers the following questions:

- How do I estimate the intrinsic value of an ETF?
- What is the investment philosophy behind Wesley Grayâ€™s value ETF?
- Ask The Investors: Can you apply principles from Growth Investing in Value Investing?

### How do you estimate the intrinsic value for an ETF?

To estimate the intrinsic value of an ETF, Wesley Gray points out that you first need to look at the investment process. Is it a solid process that you expect to perform well in the future? This is an important consideration because when you buy into the existing portfolio, you are also buying into a fund that will move around its portfolio.

One can argue that the intrinsic value of an ETF is the net asset value of the stock since thatâ€™s the price the stocks can be sold for in the open market. Clearly, this would also be dependent on whether you think the underlying assets are worth exactly what the stock market has priced it at.

Wesley Gray has tested a variety of fundamental to predict the future return of an ETF. What he has found is that the earnings yield on a large portfolio of stocks is the best predictor after subtracting realized inflation. The earnings yield is simply the inverse of P/E. If the P/E is 20, the earnings yield is 1/20 = 5%.