International Equities: Trading Hours
Asset Class Specific Considerations
Asynchronous Trading Hours
- ETF iNAV typically reflects local market closing prices of underlying constituents adjusted for currency impact.
- When markets for underlying securities are closed, the ETF price may deviate from the ETF iNAV calculation as investors react to new information.
- Availability of hedging instrument: The Euro Stoxx 50 Futures contract is a better reference vehicle than ETF iNAV when Europe is closed.
Fixed Income ETFs: Premium/Discount
Premium or Discount: The price of the ETF relative to the Net Asset Value (NAV) of the underlying basket can be a catalyst for the create/redeem process
Premiums or Discount: These differences may also represent price discovery periods as the ETF’s continuous pricing offers transparency to stale underlying pricing or differences in market structure (i.e., 3pm versus 4 pm close).
Fixed Income ETFs: Matrix Pricing
When quotes are not available, matrix pricing is a commonly used method to price a bond.
Example: Value Bond B
Fixed Income ETFs: Wrapper Benefits
As single bond trading has become more constrained, the alternate route of sourcing bond liquidity through ETF trading has grown.
Transaction Cost Savings: Bid-ask spreads for institutional size ETF trades have historically been significantly lower than indicated spreads for underlying fixed income securities*
Centralized Liquidity: ETF trading on exchange provides a consolidated venue of observable liquidity.
Efficiency: The ETF provides implementation flexibility with easier trading relative to buying individual bonds in the OTC market.
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Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.
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