When the ETF’s price is lower than the NAV, the ETF is said to be at a “discount” – the ETF is valued less than the fund’s overall holdings. If the ETF’s price is above the NAV, the ETF is said to trade at a “premium” – the ETF is trading higher than what the underlying holdings are worth. [Premiums & Discounts]
However, the INAV gets murkier when looking into other markets. For instance, international markets are not open in the same time zone as U.S. markets, but foreign stock and bond ETFs are still trading on U.S. exchanges. Since the INAV is taken based on the last price at which it was traded, the INAV may not move during normal hours.
Consequently, the INAV for international ETFs, along with most commodity and fixed-income funds, may represent a stale number as these markets don’t necessarily trade during normal U.S. market hours.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.