Premium, at NAV, or discount: three scenarios
| Scenario | Price vs NAV | Common In |
|---|---|---|
| Premium | Price > NAV (you pay more than holdings are worth) | Popular ETFs during market euphoria |
| At NAV | Price = NAV (fair value) | Most liquid ETFs most of the time |
| Discount | Price < NAV (you pay less than holdings are worth) | Bond ETFs during market stress |
Why arbitrage keeps price near NAV
For liquid US equity ETFs, the gap is usually under 0.1% thanks to Authorized Participants who arbitrage away differences. Bond and international ETFs can have larger gaps.
Check an ETF's premium or discount
Check an ETF's current price versus its NAV. The premium/discount tells you if you are getting a fair deal.
Never overpay: avoid a large premium to NAV
What a 1% premium to NAV means
An ETF trades at $101 but its NAV (calculated from underlying holdings) is $100. A 1% premium. What's going on and what does it mean?
Check your understanding
Sit with the ideas.
An ETF has a NAV of $100 but trades at $98. What is this called?
Why: