New to ETFs

Chenner

I would appreciate some pointers about investing in ETFs. I have invested in funds but never ETFs so am a bit wary!

When investing in an ETF, what is the significance of the 'Premium' figure? What does it infer if an ETF has a premium of 30%, or if it has a premium of -30% (minus)? I am looking at two ETFs (in totally different markets/sectors) and one is at a 30% premium, the other at -30%. These look relatively large percentages - are they, or is this within a quite normal range?

I have also read that there can be a spread on ETFs and they may not always be very liquid - leading to wide spreads if for example there is a crash in the market the ETF is tracking and there are lots of sellers. Is this right?

Any tips and knowledge very welcome!

gkerr4

do you know what a premium means? - this is the price the ETF is trading at relative to the NAV of the contents of the fund - there shouldn't, of course, be a premium at all - it should track the NAV.

30% sounds a lot to me i have to say - but people with more experience will know better - the only (few) ETF's I've used have been within single-digit premiums - and usually "caught up".

Chenner

Is there the problem about spreads when there are lots of sellers?

xylophone

http://www.thisismoney.co.uk/money/investing/article-1619362/Exchange-Traded-Funds-ETFs.html

https://www.ishares.com/uk/individual/en/literature/brochure/investor-guide-to-etfs-en-gb-rc-brochure.pdf?siteEntryPassthrough=true

the above might be of interest.

Chenner

xylophone wrote: »

the above might be of interest.

Thank you for the links, they are useful general information but neither answers the two questions I was asking.

masonic

The NAV might be reported once a day and might include items that are valued less frequently. The ETF may therefore price in information not available to the market when the underlying assets were last valued for NAV, resulting in a discount or a premium.

30% differences sound very large. The price and NAV don't normally deviate by very much unless the market is very volatile. Out of interest, which ETFs are you looking at?

In terms of selling during a stampede for the exit, the difference between funds and ETFs is that where a fund would need to lock people in if they couldn't sell assets quickly enough to repay investors, an ETF would continue trading, but the price would be depressed accordingly, so you would be able to sell at whatever price the market decides (i.e. a big discount to NAV). Of course, you would still have the option to sit tight, as you would be forced to do if a fund ran into liquidity problems.