Etf thoughts (companies, money, stock, investor)

[Timothylogan3]

So I was just wondering about a number of possible problems in the etf market that I would love to hear input from you guys. First one - what would be the possible options for an etf company whose shares are trading trading below their NAV due to lets say the etf price falling because of fears and problems around the company and not the assets themselves. Or lets say the whole market is falling but the rate at which the etf falls is much much higher than the underlying assets falling rate. How would the company treat that imbalance if it continues for a long period? Secondly - not so long ago there were problems on the metal etf side, where it was alleged that movements in these markets were some how responsible for the volatility and manipulation of the underlying market. Now my question is obviously short selling in the etf markets can never influence the underlying market. It is the share that is being shorted and not the metal itsself. So I want to know how are movement in the etf's influence the underlying assets, in this case metals, in particular silver.

[rubber_factory]

Originally Posted by Timothylogan3

First one - what would be the possible options for an etf company whose shares are trading trading below their NAV due to lets say the etf price falling because of fears and problems around the company and not the assets themselves.

I am no accountant, nor am I a professional investor... but I would imagine that the ETF is invested in companies who are either losing money, or are subject to some accounting chicanery.

Maybe they have liabilities hidden off-balance sheet, liabilities "coming to light" in the near future, falsely inflated asset values, illiquid and depreciating assets... who knows. Maybe Mr. Market thinks their business model is terrible, or their industry is "on the way out".

[Timothylogan3]

Arbitrage. That is the answer to both the questions. The bottom line here is that any deviation from nav, means changing nav to reflect etf price, by either purchasing or redeeming creation unit and etf accordingly. That said, too much shortselling in metal etf means depressed etf price and that in return means changing nav by dumping underlying stock or creation unit in the market.

[ExcellentFudge]

Originally Posted by Timothylogan3

So I was just wondering about a number of possible problems in the etf market that I would love to hear input from you guys. First one - what would be the possible options for an etf company whose shares are trading trading below their NAV due to lets say the etf price falling because of fears and problems around the company and not the assets themselves. Or lets say the whole market is falling but the rate at which the etf falls is much much higher than the underlying assets falling rate. How would the company treat that imbalance if it continues for a long period? Secondly - not so long ago there were problems on the metal etf side, where it was alleged that movements in these markets were some how responsible for the volatility and manipulation of the underlying market. Now my question is obviously short selling in the etf markets can never influence the underlying market. It is the share that is being shorted and not the metal itsself. So I want to know how are movement in the etf's influence the underlying assets, in this case metals, in particular silver.

I think you are asking whether the ETFs can wag the dog so to speak, of the underlying component share prices. In the case of silver, the price on SLV and spot price track closely. The actual physical/street price has a premium that never get near spot.

In general, check out ETFConnect.com for NAVs on the ETFs. Currently, SLV share price has a slight discount to NAV. In contrast, IFN has a high premium vs. net underlying shares it holds.