ETFs Trading At Extremes To Value
The volatility last week caused more exchange-traded funds to trade at a premium or discount to their net asset value than perhaps we've ever seen. Large price dislocations from underlying value are not uncommon for vehicles like closed-end funds, but it is rare for an ETF structure.
Often, extremes in an ETF's premium/discount provides a short-term mean-reversion opportunity. Because of how they are set up, and the liquidity underlying most of them, it is extremely rare for a premium/discount of more than 0.5% or so to persist. Usually, that means price moves in the direction of the net asset value.
We ran a screen looking at all 52-week highs premiums among ETFs, coming up with the following list. It's interesting that several of these are inverse bond funds, most notably TBT. This should mean a snap-back in bond prices.
Source: Bloomberg
The list of 52-week lows in ETF discounts is much longer. Silver funds dominate the list, not surprising given the smashing silver took on Friday. Also popular in the list are emerging-market funds. Based on the makeup of this list and typical market reactions following behavior like this, we should be seeing some reversal in those markets early this week. If not, we'll be witnessing an event unlike anything since the financial crises when the ETF market was much less mature.
Source: Bloomberg