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The Market Is 10% Undervalued: Mutual Fund Manager

The market is 10 percent undervalued and still somewhat cheap, Bob Olstein, chairman and CIO of the mutual fund company Olstein Capital Management, told CNBC on Thursday.

"There are a lot of values out there because everybody is in the moment," Olstein said. "There's ETFs (exchange-traded funds), there's minute-to-minute trading—and that's creating more and more deviations for people who look under the hood. And I think there's a lot of room still on the upside."

"We play against the indexes. We don't think it's about relative performance. We think it's about absolute performance. If you've done relative performance for the last 10 years in the S&P index, you've had no return," he added.

However, Olstein cautioned about investing in ETFs because sophisticated investors who are playing the ETF market understand how to mitigate their risk. "These are trading vehicles."

"[ETF's] are not passive ... they are active. Let me tell you, these institutions are trading them up and down, the savvy investors," he added.

"75 percent of the broken trades in the "Flash Crash" were in Exchange Traded Funds," Olstein said, "and they only represent 11 percent of the volume."

The recent correction in the bond ETFs "went to 4- to 5- percent discounts. How is that a low cost if you have to sell 5 percent under the prevailing market value, when you could've owned a [bond] mutual fund and sold it and gotten market value out of it," he added.

"When they slice and dice these ETFs, and we see a lot of portfolios coming over to our fund, you see these managers are all under the guise of low fees, low fees," Olstein said. "Did anybody think low fees, low research?"

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