GYLD's Drop: A Real ETF Pricing Error


Take a look at what happened to the ArrowShares Dow Jones Global Yield ETF (NYSEArca:GYLD) yesterday.

GYLD is an interesting, well-run fund from a smart and focused startup ETF provider. The fund is well established in the market, with $84 million in assets. It has decent trading volume of nearly 50,000 shares per day; tracks its index well; and provides interesting, diversified exposure to five high-yielding segments of the market:

  • Global sovereign debt
  • Global equity
  • Global real estate
  • Global alternative
  • Global corporate debt

Its 30-day SEC yield is a healthy 5.77 percent.

In other words, it's a good ETF.

And yet, for the first 90 minutes of trading on Monday, June 24, GYLD traded terribly.

The fund opened down about 2 percent on the day, on par with the broader market. Then, things went crazy. A handful of market orders-small lots of 300 shares, 500 shares, 135 shares-walked the price down to the point where GYLD was off nearly 10 percent. The S&P 500, at the time, was down "just" over 2 percent.

Did one of GYLD's individual holdings blow up? That couldn't be the reason. The portfolio is not especially concentrated-it holds 150 securities-so no single blowup could account for the 10 percent move. Something was up.

At this point, if I were a trader, I would have bought GYLD. The only rational explanation was irrational pricing. Eventually, the market woke up to this reality and its price snapped back in line.

Why did GYLD trade down so far? The truth is, we don't know. GYLD gets little attention from market makers-occasionally Knight or UBS shows up on the tape, but for the most part, it's an ETF that changes hands between traders. Yesterday was no different, and the markets were volatile. Put them together and you have a bit of a perfect storm.


What are the takeaways from situations like GYLD?

First, never use market orders; that's what started the mess in the first place.

Second, before you buy or sell an ETF, check to see if it's making an outsized move. If it is, it pays to cross-check it against competing funds to make sure it makes sense.

Third and finally, don't let this scare you.

GYLD is a well-run fund, and if you bought it for the long haul-and know how to trade-nothing bad is going to come to you. Consider this:Later in the day, a massive trade for more than 150,000 shares of GYLD priced spot-on in the market; you can't even see it in the chart. It didn't move the share price up or down. That was a trader who knew what she was doing.

As always, a little education can go a long way. Without it, it's a long way down.

At the time this article was written, the author held no positions in the securities mentioned. Contact Matt Hougan at

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Copyright ® 2013 IndexUniverse LLC . All Rights Reserved.

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: CVY , GYLD , MDIV



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