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Premium and discount to NAV

The gap between a fund's market price and its net asset value, small and short-lived in ETFs and often large and permanent in closed-end funds.

In an etf a persistent gap usually means the NAV is stale rather than the price wrong: an international fund's holdings stopped trading hours ago, so the ETF price is the live estimate and the NAV is history. In a closed-end-fund there is no arbitrage at all, so the gap is a genuine sentiment premium or discount.

Watch premium spikes as a stress signal. An etn whose issuance is capped, or an ETF whose creation-redemption is impaired, can detach from fair value by amounts that dwarf any view you had on the underlying.

Example: ETF price $41.55, NAV $41.00. The premium is $0.55 / $41.00 = 1.34%. Buying there means paying 1.34% above the assets, and the gap typically closes when the underlying market reopens.

Related: nav, creation-redemption, closed-end-fund, etn, authorized-participant

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