February 28, 2007 at 1:25 am by Tom Lydon
Market values of exchange traded funds (ETFs) vary from the value of the stocks the fund owns because unlike a mutual fund, the price of an ETF isn’t set by measuring the value of all the stocks it owns. The value of an ETF is set by the market, like the price of a stock, and then buyers and sellers bid on and compete for shares of the ETF. Matt Krantz of USA Today says knowledgeable investors know what the ETF shares are worth and are always buying and selling them. This buying and selling gets the price of the ETF close to the precise value of the underlying stocks. The most actively traded ETFs are priced closest to their NAVs.
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