The greater trading flexibility that ETFs offer can be beneficial — or costly, if not timed properly. With a mutual fund, the price you pay and receive when you transact will always be the NAV of the fund, whereas with an ETF trade, there may be a premium or discount to the NAV.
Placing trades during off-hours or opening and closing auctions increases the risk of executing an ETF trade at a price that’s notably different than the NAV because pricing during these times tends to be more volatile. To safeguard the intraday pricing of ETFs, most issuers have a capital markets team to promote efficiencies across the primary and secondary markets.
As ETFs continue to evolve, so do the opportunities for investors. Traditionally, passive ETFs have been used within the core of portfolios to gain broad diversification while active ETFs were treated as thematic or satellite holdings. However, we believe there’s a strong case for active transparent ETFs within the core of portfolios, either to supplement or complement other investment vehicles like mutual funds.