NAV Premium/Discount

Happy Friday to Everyone!

One of the several nuances that make ETFs unique is there method of coming into and going out of existence – the process of Creation and Redemption.  Before ETFs and for many years, discussions surrounded Closed-End -Funds, and now ETFs, about the price level at which a particular fund may trade in comparison to the Net Asset Value of its constituents. Generally, from here we would begin the discussion of arbitrage, market inefficiency and the like – but for the purpose of this post, let’s step back and look high level at this overall landscape within the world of ETFs.

Average & Just about at NAV:  The average premium/discount across the universe of ETFs (not ETNs) is a discount of .14%.  Averages are hardly helpful statistics when looking at large distributions like this, so let’s delve in a little deeper.  The vast majority of ETFs trade incredibly close to their respective Net Asset Values.  How close,you ask?  Of the approximate 1,230 ETFs that we track daily, 818 or about 67% trade within 1% of their respective NAV.

At a Discount:  As of yesterday, there were 519 ETFs trading at various levels of discount with the preponderance of those trading at very minor discounts.  Specifically, 491 ETFs traded at discounts to their NAV of 5% or less, with only 15 ETFs trading at discounts between  5% and 10% and 9 other ETFs, most with unique stories, trading with discounts of 10% or greater.

At a Premium:  As you would expect, the story is similar on the positive side of the distribution axis. There are 702 ETFs that trade at various premiums to their respective NAVs – about 10 actually trade precisely, at least 3 decimal places, at their NAV.  Similar to the discount group, the vast majority of these Premiums are less than 5% and represent 688 of these ETFs, with 10 ETFs trading at premiums between 5% and 10% and a couple of special situation ETFs with premiums above 10%.

The best way to incorporate this data point into your ETF research and selection is to start with the ETFG Scanner, then go to Filters and simply check the Discount/Premium box under Display Fields.  This will add a column in the display for NAV Discount/Premium.

Have a terrific weekend and thank you for reading ETF Global Daily Perspectives.