WisdomTree recently launched its eNAV (estimated NAV) tool, a refresher on the indicative optimized portfolio value (IOPV) metric that’s long been integral part of exchange traded fund mechanics.
As was recently reported here, IOPV isn’t a price advisors and institutional can transact in ETFs, but it does provide those market participants with a useful real-time snapshot regarding the value of an ETF’s underlying holdings.
WisdomTree’s eNAV expands upon and refreshes IOPV to the benefit of financial professionals that frequently transact in ETFs.
“With the introduction of our new Estimated NAV Tool or eNAV, we are now providing unparalleled transparency into every ETF basket’s fair value,” said Michael Barrer, head of WisdomTree capital markets, in a recent note. “Historically, issuers were required to publish IOPV or indicative value, which showed the last traded price of the underlying basket in ETF terms. eNAV goes one step further and provides the bid and ask or current fair value spread of the underlying basket.”
Building on a Tried and True Practice
One of the most oft-mentioned pieces of advice for market participants that frequently trade ETFs is to avoid trading in the first and last 15 minutes of the trading day, because spreads on underlying baskets can be wide.
“Typically, this period is the most volatile time of the day, and spreads in the underlying baskets are widest. When spreads in the underlying stocks are wide, it translates to wider spreads in the ETF as well, which can lead to higher trading costs,” notes Barrer.
Early in the trading day, stock prices can move in herky-jerky fashion, making it difficult to gather relevant IOPV data. Likewise, late in the day, some traders are clearing positions in advance of the next trading day, potentially triggering wider spreads. However, eNAV provides a deeper glimpse into why avoiding these times of day is meaningful and potentially profitable.
“Transparency is one of the cornerstones of the ETF structure. We believe eNAV only improves on this aspect and adds to the overall ETF investor experience. Next time you hear someone say ‘don’t trade ETFs during the first or last 15 minutes of the trading day,’ don’t just take their word for it, see it for yourself with eNAV. It might just save you money,” says Barrer.
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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.
