If the market price is higher than the NAV, the ETF is said to be trading at a “premium”. However, when financial markets become more volatile, ETFs quickly reflect changes in market sentiment, while NAV may take longer to adjust—resulting in premiums and discounts.

The important thing to remember is that ETFs generally trade close to their fair value, and premiums or discounts tend to be short-lived.Confusing as it seems, ETFs have more than one "price. ET. One larger product trading with a notable discount is the AdvisorShares Peritus High Yield ETF (HYLD). Discount to net asset value is a pricing situation that occurs when an ETF's or mutual fund’s  It is considered a forward price NAV since it accounts for all transactions that have occurred since the previous day’s price calculation. In many cases a premium or discount may be due to slight variations in the market pricing of the

Premium to net asset value (NAV) presents when the value of an exchange-traded investment fund is at a premium to its daily reported accounting NAV. The NAV return is the change in the net asset value of a mutual fund over a given time period. A fund trading at a discount to NAV offers an opportunity to profit. Article copyright 2014 by ETF.com. Fund managers can buy back shares to restore the fund’s NAV. If a discount does occur, investors can profit from the discounted price and also gain yield benefits from a lower price on income paying securities. The

Discount to net asset value refers to when the market price of a mutual fund or ETF is trading below its net asset value (NAV).

However, when financial markets become more volatile, ETFs quickly reflect changes in market sentiment, while NAV may take longer to adjust—resulting in premiums and discounts.This can happen throughout the trading day, because the ETF and its underlying securities are actually two distinct liquidity pools that are only loosely linked.If optimistic investors start bidding up an ETF aggressively—more so than its underlying securities—the price of the ETF may rise faster than the price of its underlying securities and, consequently, it may trade at a premium. Most closed-end fund managers report both the day’s market price and NAV in their marketing materials. That said, not all premiums and discounts quickly self-correct; some persist for a variety of reasons. The net asset value is the value of the fund’s total assets at market close minus the fund’s liabilities divided by the total number of shares outstanding. Fund’s can trade at a discount for many reasons. If the price is lower, it is trading at a “discount”. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. A management investment company is a type of investment company that manages publicly issued fund shares. The return of an index ETP is usually different from that of the index it tracks because of fees, expenses, and tracking error. An ETF may trade at a premium or discount when, for example; In these cases, the ETF effectively starts trading like a closed-end fund, and can trade at constant premiums until creations are resumed, when such premiums usually vanish.The important thing to remember is that ETFs generally trade close to their fair value, and premiums or discounts tend to be short-lived. A list of ETFs by discount/premium to NAV, page 1, from ETF Channel. A premium or discount to the NAV occurs when the market price of an ETF on the exchange rises above or falls below its NAV. Conversely, if the price of the ETF is trading below its NAV, the ETF is said to be trading at a “discount.” In relatively calm markets, ETF prices and NAV generally stay close.

Depending on the severity, the issuer may even have to halt the creation of new ETF shares.During the Arab Spring, for instance, ETFs tracking the Egyptian markets shuttered, leading to wild swings in the perceived premiums of those ETFs. The offers that appear in this table are from partnerships from which Investopedia receives compensation. The In this case, any significant deviation between ETF price and NAV will likely vanish when both exchanges are open at the same time.Thanks to the creation/redemption mechanism, deviations between ETF price and its NAV tend to be short-lived. The statements and opinions expressed in this article are those of the author. Closed-end fund values typically do not deviate far from their NAV since the funds are backed by their underlying holdings. ETPs that use derivatives, leverage, or complex investment strategies are subject to additional risks.

Closed-end funds do not have such mechanisms and offer greater opportunities for arbitrage. It’s not uncommon for those ETFs to trade significant volume after the London Stock Exchange closes at 11:30 a.m. Closed-end funds tend to trade with higher volatility from their NAV than ETFs because ETFs have authorized participants that actively follow the shares and take action to reconcile the price in the open market when it deviates from the NAV. ETPs that target a small universe of securities, such as a specific region or market sector, are generally subject to greater market volatility, as well as to the specific risks associated with that sector, region, or other focus. They also often provide historical records of premium and discount market levels versus NAV. A discount to net asset value can occur with closed-end mutual funds and Reprinted with permission from ETF.com. Net Asset Value is the net value of an investment fund's assets less its liabilities, divided by the number of shares outstanding, and is used as a standard valuation measure. Currently it has a 3.1% discount―not huge, but enough to catch one's eye.

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