ETF attracts investors as prices start low this week

The last week of April has commenced with a negative trend for Exchange Traded Funds otherwise known as ETF. To no surprise, most investors seem to be booking their profits ahead of the month-end, with some others considering it an opportunity for new investors to come in as most ETF traders target the lowest support for their entry.

What are some significant factors affecting ETF prices?

Current prices of some US ETFs at the beginning of the new week:

  • Global XMSCI Argentina ETF (#ETF- ARGT) is down by 6% with its price at $32.76.
  • Xtrackers Harvest CSI 300 China A-Shares (#ETF – ASHR) is down by 5.5%, priced at $30.67.
  • SPDR Dow Jones Industrial Average ETF (#ETF DIA) is down by 1.2%, its price at $338.15.
  • iShares MSCI EAFE Index ETF (#ETF EFA) is down by 4.2%, priced at $70.42.
  • iShares MSCI Peru ETF (#ETF – EPU) is down by 7% with the price at $33.44.
  • iShares MSCI Malaysia ETF (#ETF – EWM) is down by 6.2%, priced at $24.94.
  • iShares MSCI Indonesia ETF (#ETF-EIDO) is down by 3.5% with price at $24.61.
  • iShares MSCI Emerging Markets ETF(#ETF-EEM) is down by 2.7% with price at $42.37.

 

Factors affecting ETF prices

Fair Value: In a regular market, ETFs are priced according to their fair value. The concept of fair value suggests that each ETF has an intrinsic worth based primarily on the value of the underlying securities the ETF holds. This fair value often changes throughout the day as the value of the underlying securities changes too. Investors are usually attracted to buying a given ETF during the day when prices are low.

Value of Underlying securities: Similarly, the prices of ETFs are affected by the value of the underlying basket of protection and the price at which a market maker can hedge the exposure. ETF shares, as we know, are created in exchange for a basket of securities. When an authorized participant (AP) — say a financial institution, for instance, makes over 100,000 shares in exchange for securities worth US$1 million. Presuming the absence of any other cost, each ETF share would be worth US$10. The prices could further increase during the day if more investors were to purchase the shares.

 

There is a great buying opportunity for these ETFs, especially for long term investors. We can expect prices to soon recover from this region once more.

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