Hello, I've read in several sources that the value of the stocks in an ETF can drift away from the price. So an ETF trading at $190 could have only $180 of stocks pegged to the $190 price. I even read somewhere (the internet... who knows how reliable), that one ETF was trading at a price 2x the value of its underlying assets (maybe a fast-moving tech sector ETF). I think with mutual funds you get a settlement at the end of the day that makes the values proper. Has anybody had experience with NAV drift? I've read about it, but I'd like to hear from people who actually have invested in ETFs. I think it would be nice to sprinkle some ETF stuff into a portfolio, but the drift between the price of the ETF and the value of the underlying shares has me concerned. I'm new at this, especially ETFs.
Yes ETF bid/ask prices can drift from the NAV, but usually less than 0.2%. On very thinly traded ETFs, it is possible for the difference to be substantially higher, especially if the ETF is not shortable. I have never seen an ETF with a 2x difference, but I have seen over 3%. Usually that is in a special situation, such as when the ETF has announced that it is closing, and everyone wants to get their money out; Or, if a holding in the ETF is halted, and is waiting for an announcement (such as a biotech company awaiting an FDA decision as to whether a new drug is approved). Stick with ETFs with a high trading volume, and stay away from the market opening and closing times and you don't have to worry too much about the drift.
In the creation/redemption mechanism of an ETF there is an authoried participant (AP) that keeps the discount/premium in check ( even before any other market players do or would do ) containing any drift. This is in regard to the more liquid names anyway.