I was checking a description for the ETF and there was a comparison of how many times the market price was above or below NAV. What does this tell me about the ETF and why would I need to care about it?

NAV is the value of the holdings inside of the ETF and market price is the price for the share unit of ETF. As I understood they should be consistent and as soon as price becomes above NAV then more shares are created and when it goes below shares are redeemed.

Why does an investor need to know it?


1 Answer 1


Market price and NAV are supposed to converge as the premium/discount is arbitraged away through creation/redemption.

The daily variations are small for liquid ETFs and I wouldn't worry about it on a daily basis.

However, if an ETF is trading at a huge premium/discount, it might be a sign of liquidity issues or idiosyncratic factors affecting the ETF or underlying assets (small number of holdings, thinly traded stocks or bonds, impending liquidation, futures based ETFs, sanctions...)

  • So why do they show this chart then? And I would think the ratio should be about 50/50?
    – Medan
    Mar 8, 2023 at 20:33
  • 1
    @Medan supposedly because the data is available and some people find it interesting/useful? There's no reason it needs to be 50/50 as it comes down to the supply/demand dynamics of both the ETF and its holdings. Per your link, the ETF was trading "within 0.5% of NAV" every day of the past year, which is reassuring.
    – 0xFEE1DEAD
    Mar 8, 2023 at 21:26

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