In this discussion, Part 3, we start to get into the details of ETF – Just in case you missed it here are the links to Part 1 our Pilot and Part 2 ETF V Mutual Fund
Authorized Participant V Secondary Market Participant
Authorized Participant are the creators of the ETF, but more than that, they provide future liquidity in the form of more or less shares as needed. This job is held by a predetermined agreement, is usually a large financial institution, and they are the only ones that can adjust the number of shares. Pro-Tip these guys make money by adjusting the shares as needed and capturing mispricing when the NAV – Net Asset Value or True Value differs from the actual price -NAV Values CAN differ from ETF value which is called a premium or discount.
Secondary Market Participant
These are the buyers and sellers of the ETF on the open market, think you and me and think the price you see most often during the day!
Net Asset Value – NAV – Premium and Discounts
This is the most important concept to gather from this article.
As mentioned above, the NAV or Net Asset Value is the true value of the ETF – Remember there can be a bunch or a few assets in the ETF. If some of these assets are very liquid it can be hard to determine what the TRUE value is – This can present a risk/opportunity during times of stress – So the items in the bucket are important in determining just how much variability may occur and in some cases if an ETF is even the correct wrapper for the assets – More to come!
Have a Great “ETF Structure Discussion” Day!
John A. Kvale CFA, CFP
AI Content Authenticity: All of the following text content has been completed by myself and has not been edited or created by AI. Occasionally we do use AI for images and will note when appropriate.
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
