An ETF premium or discount measures how far its market price moves above or below the net asset value (NAV) of its holdings. A $10 NAV traded at $10.05 carries a $0.05 premium; if that relationship reverses, the investor faces a $0.05 discount. section 4.1.3
Use the metric to interpret ETF pricing and portfolio costs:
- Treat a stable, predictable premium or discount as less concerning than one that fluctuates between premium and discount. section 4.1.3
- Expect larger or more persistent deviations when underlying holdings are illiquid, expensive to trade, or subject to high creation and redemption fees. section 4.1.3
- Recognize that heavily traded ETFs often have very small deviations, while mutual funds avoid this pricing issue by trading at the value of their holdings. section 4.2.1 section 4.2.4
A small adverse move
Buying an ETF at a $0.05 premium and later selling it at a $0.05 discount creates a $0.10 change relative to NAV, adding uncertainty to the investment return. section 4.1.3
Table 4.5 Total ownership cost breakdown
| SPY | IVV | VOO | SPLG | |
| Trading | $2.30 | $4.59 | $ 5.01 | $19.58 |
| Holding | $45.00 | $15.00 | $15.00 | $15.00 |
| Total | $47.30 | $19.59 | $20.01 | $34.58 |
The ownership-cost breakdown treats adverse premium movement as having zero expected cost and ignores it when liquid ETFs have a small premium range. section 4.3.1
