Exchange traded funds (ETFs) dust mutual funds in a lot of respects. But one area where mutual funds have the advantage is that they always strike the net asset value (NAV) right on the nose.
Active ETFs tend to have larger premium/discounts to their NAV because of greater turnover in the fund and lower interest from market makers and designated brokers. Shishir Nigam for Daily Markets reports that mutual funds get the exact NAV of the fund, but the trade-off is that you can only trade once – at the end of the day. [Premiums, Discounts and Creation With ETFs.]
The question is whether or not active ETFs can handle all-day trades and still stay close to their net asset values. Nigam says that on average, in looking at active ETFs as a whole, 87% of the time the funds traded within the +/- .050% range, with very few occurrences overall where funds traded at large premiums or discounts in excess of 2%. [More on ETF Discounts and Premiums.]
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.