I suddenly tripped across thematic investing in my etrade platform and the subject were interesting since most of them were in techfield: AI, gaming and cybersecurity. THere are several ETF I found and it is totally new for me. The composition HACK, GAMR and ESPO. I am interesting in purchasing few as they are composed of stock I am normally interested in. I also found article in which says "Jan 2019 saw 20B$ fly out of ETF market." Now this derives a question: I know ETFs are composed of various denomiation of stocks and allows the investor like small me to buy myriad of stocks composition at cheaper unit price of an ETF. Now the question is does ETF price solely follows the underlying stock composition or another factor in it? Let's say certain ETF has players: buyers and sellers and obviously it seem to have its own demand/supply independent of underlying security which is a composition of stock. What happens in case of where certain ETF A is considered and it consist of stocks B and majority or most of the underlying stocks B are performing well which should cause ETF to rise but most of the traders of that particular ETF a dumps it?
Many of those thematic ETFs are only being created when a certain theme is hyped. By that time the large masses hear about the hype and get in, which is usually too late. You'll have to read the individual ETF's documentation to understand how it is constructed: is it a physical ETF? Meaning that it holds shares in the underlying companies? Or is it a synthetic ETF, which does not hold the stock itself but other instruments which move in the same way as the stock (e.g. futures, options, etc.)?
The following is from IShares, and may also help answer your question. >> ETF prices tend to closely reflect their fair value. That’s particularly the case for funds that track large-cap US stocks, which tend to be highly liquid and trade in the same time zone as the ETF. That said, an ETF’s price and net asset value will frequently differ – that is, the exchange traded fund will trade above its NAV (at a premium) or below it (at a discount). Here are some common reasons for the ETF premium and discount: When the ETF holds securities that do not trade at the same time as the fund itself, there will be timing differences between the values used to calculate NAV and the market price. This is very common with ETFs that hold non-US stocks, but also affects bond ETFs (because the most recent trade for certain bonds in the portfolios may not be near the market close). A bond ETF values bonds at the bid, while the secondary market may value the ETF shares at the bid, the ask, or somewhere between. This is one reason small premiums are common for bond ETFs. The market price is based on supply and demand. Sometimes there is more of one than the other, causing a premium or discount. This is usually temporary but during periods of market volatility, gaps between the prices at which buyers are willing to buy and the prices at which sellers want to sell can widen until a new price equilibrium is established.
As outflows from the ETF occur, they would be selling shares of the component stocks. The NAV shouldn't really be affected too much by outflows.
This is only true if the underlying stocks are trading when the ETF is trading. Otherwise, the adjustment cannot be made, resulting in a NAV deviation. Example: EWJ is a Japan ETF, traded in the USA. I think that the component stock are all traded in Tokyo. Tokyo's trading hours do not overlap with those in the US. So here you could have a deviation in NAV.
That is good thought, each of unit of ETF holds the fraction of the underlying composition of stocks I presume therefore, letting go of ETF result in selling underlying stocks in batches in fractional amount right?
careful here. An ETF, by definition has unlimited liquidity. If there are true outflows from the ETF, this will lead to net-redemption of the ETF shares, which in turn will lead to the underlying equities being sold. Unfortunately, the underlying equities have quite limited liquidity, especially when this is not US large cap stocks. Due to these differences in liquidity, the ETF's market price may deviate quite a bit from the NAV. During normal trading days, this should not happen - but in times of panic it might.
%% Exactly,many of those non liquid ETFs will gap + gap frequently when you do not want them to.If one like to read,read a multi page ...….........annual report/prospectus
Hobby trading, i was thinking about this, out of 3 ETH-s I purchased so far, FIVG, HACK and BOTZ, they all shows compositions nicely in fidelity trading. SInce they all listing stocks I presume they are all physical ETF? No need to read and find anywhere any fine prints? Do you have example, or ticker symbol for synthetic ETFs I can possibly look under fidelity (preferably) or other trading platforms to see its composition? thansk.,