ETF Premiums That Aren’t

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A quick note to those folks out there reading scary headlines about ETFs "collapsing."

Today Brendan Conway committed what's an all-too-common error in his blog, on surprised "crashes" in three ETNs:(NYSEArca:CHOC), (NYSEArca:NINI) and (NYSEArca:CTNN), the iPath Pure Beta ETNs tracking cocoa, nickel and cotton.

Most likely, he was looking at the "big movers" on a screen somewhere, and noticed that, for instance, NINI was "trading at $29.94, down $3.51." And indeed, that's what the screen shows:


NINI quote

Holy cats! The ETN had a 9.4 percent premium to its fair value going into today!

Umm, well, no. What it had was a print so old it made the data look like a mirage of unfair-value, ripe for arbitrage. I would say that errors like this should be rare and easy to avoid, except that not a day goes by when I don't read a headline about "premiums" and "collapses" in thinly traded ETNs and ETPs, or get an email from someone thinking they're either a genius or a fool.

The good news is that these kind of issues are entirely avoidable.

Intraday net asset values, or iNAVs, are available for all ETNs and ETFs, and you can simply match these against live, quoted bids and asks. That's what tells you whether a fund is really at a premium.

Oh, and NINI? It may be trading with enormous spreads of nearly 10 percent, but guess where those spreads are straddled over today-and pretty much every day.

Fair value.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , ETFs

Referenced Stocks: CHOC , CTNN , NINI

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