Source : usatoday.com
By : Matt Krantz, USA TODAY
Category : Search Engine Optimization SEO
Q: How close do ETFs trade versus their indexes? A: Exchange-traded funds, or ETFs, are baskets of investments that trade like stocks. But many also move in lock step with indexes.
ETFs were created as a way for investors to buy into major indexes, rather than just watch those indexes. But ever since ETFs were created, some investors worried speculators in ETFs would drive their value in different directions as the underlying indexes and create market distortions. Certainly, the possibility is there that some ETFs’ values might diverge temporarily from that of the index. And that divergence has occurred periodically, but usually with lightly traded ETFs.
TRACK YOUR STOCKS: Get real-time quotes with our free Portfolio Tracker But for the big ETFs which attract the most trading and track the most common indexes, such divergences are rare. The extremely popular SPDR S&P 500 ETF, for instance, typically trades less than 0.05% away from the value of the index. It’s a similar story with the PowerShares QQQ, which tracks the Nasdaq 100 index, or a collection of the largest, non-financial stocks in the Nasdaq. That ETF typically trades less than 0.05% away from the value of the Nasdaq 100.
USATODAY.com’s Money section allows investors to see when the value of an ETF trades higher than its index, a premium, or below it, the discount.
Source : usatoday.com/story/money/columnist/krantz/2013/09/04/etfs-premium-discount-index/2665801/