First of all, an important reason for ETF discount premium is the change of market supply and demand. When the market demand is lower than the supply, ETF will discount. This is because investors want to sell ETFs, but there are not enough buyers to take over, resulting in the price of ETFs being lower than the net asset value of its benchmark index. On the contrary, when the market is in short supply, ETF will have a premium. At this time, investors want to buy ETF, but there are not enough sellers to provide it, which leads to the price of ETF being higher than the net asset value of its benchmark index. Therefore, the change of market supply and demand is an important factor affecting ETF discount premium.
Secondly, ETF discount premium is also related to market sentiment. When the market is depressed, investors usually sell ETFs and turn to safer investment options, such as government bonds. In this case, the supply of ETF in the market increases and the demand decreases, which leads to ETF discount. On the contrary, when the market sentiment improves, investors will reinvest their funds in the stock market, hoping to get higher returns. At this time, ETF demand increases and supply decreases, resulting in ETF premium. Therefore, the fluctuation of market sentiment will also affect the discount premium of ETF.
In addition, the discount premium of ETF is also related to the trading mechanism and net value estimation method of ETF. The trading mechanism of ETF determines that its market price can deviate from its net asset value for a period of time. For example, ETFs are traded at market prices in the stock market. After ETF is listed on the exchange, its price will be affected by the supply and demand relationship between buyers and sellers in the market, which will lead to the emergence of discount premium. In addition, the method of estimating the net value of ETF determines how the fund company estimates the net value of the fund. If the net value estimation method is inaccurate or lagging behind, it may lead to the difference between the net asset value of ETF and its benchmark index, and then generate a discount premium.
To sum up, ETF discount premium is the result of many factors. The change of market supply and demand, the fluctuation of market sentiment, the trading mechanism of ETF and the net value estimation method will all affect the discount premium of ETF. Investors can get extra income by buying discounted ETFs or get higher prices by selling premium ETFs. However, investors need to realize that the change of ETF discount premium has certain uncertainty and needs careful consideration and management.