Last edited Fri Nov 24, 2023, 07:56 PM - Edit history (1)
"but it could be I'm the one wrong about it."
Actually I think you are right -- I'd go further: ALL ETF's prices deviate somewhat from the NAV except by coincidence when they happen to match.
ETF prices are determined by a bidding war between buyers and sellers, just like stocks. That price, which changes minute by minute, is almost always either higher than the NAV (known as selling at a premium) or lower than the NAV (known as selling at a discount).
Thanks for the excellent article.
I'd quibble with this one excerpt from the article:
Most ETFs are structured as open-ended funds, but some may be structured as unit investment trusts (UITs). The main difference between open-end funds and closed-end funds is that an open-end fund can issue an unlimited number of new shares and is priced daily on its NAV, whereas closed-end funds issue only a fixed number of shares.
This implies that those ETFs that are also open-ended funds are priced at their NAV. They do figure out the NAV, but that's rarely (only by coincidence) the price that it is bought or sold at. Again, it's the bidding war between buyers and sellers that determines the price. The NAV is a piece of data that knowledgeable buyers and sellers look at, but that's about its only role in determining the price.
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