Blog

GYLD's Drop: A Real ETF Pricing Error

By
Matt Hougan
June 25, 2013
Share:

I wrote yesterday about fake ETF pricing ‘errors’ in the market. But real pricing errors happen all the time.

 

Take a look at what happened to the ArrowShares Dow Jones Global Yield ETF (NYSEArca: GYLD) yesterday.

GYLD is an interesting, well-run fund from a smart and focused startup ETF provider. The fund is well established in the market, with $84 million in assets. It has decent trading volume of nearly 50,000 shares per day; tracks its index well; and provides interesting, diversified exposure to five high-yielding segments of the market:

  • Global sovereign debt
  • Global equity
  • Global real estate
  • Global alternative
  • Global corporate debt

 

Its 30-day SEC yield is a healthy 5.77 percent.

In other words, it’s a good ETF.

And yet, for the first 90 minutes of trading on Monday, June 24, GYLD traded terribly.

The fund opened down about 2 percent on the day, on par with the broader market. Then, things went crazy. A handful of market orders—small lots of 300 shares, 500 shares, 135 shares—walked the price down to the point where GYLD was off nearly 10 percent. The S&P 500, at the time, was down “just” over 2 percent.

GYLD Premium/Discount

As the equity markets stabilized, so did GYLD. It traded more or less flat for the better part of an hour, and then, in less than 10 minutes, rebounded more than 6 percent. It eventually ended the day flat.

This was ETF Mispricing 101. During the dip, GYLD traded at a real and substantial discount to its underlying value. Anyone who sold at the bottom got ripped off, and anyone who bought was happy as a clam.

How do you make sure you’re on the right side of that trade?

The answer is not to rely on the indicative net asset value (iNAV). More than 60 percent of GYLD’s holding are international, and as I wrote yesterday, you can’t rely on iNAVs for funds holding international securities. They’re meaningless.

Instead, you have to be a little smarter. We started looking into GYLD’s pricing shortly after 10 a.m. Eastern time, as it was one of the biggest negative movers on the market. Its big move seemed fishy; GYLD typically has a low beta to the market, so you don’t expect it to be leading the charge downward.

Our fears were confirmed when we compared GYLD’s move with those of similar funds.

 

ETF.COM CHANNELS

Want to learn more about smart-beta ETFs? Check out our smart-beta guide, essentials library and ETF screener!

ETF DAILY DATA

Vanguard's all-market fund 'VTI' led inflows on Thursday, April 23, as total U.S.-listed ETF assets reached a record of $2.163 trillion.

'VTI,' 'VB' and 'VGK' paced Vanguard's issuer-leading inflows on Thursday, April 23, as total U.S.-listed ETF assets rose to a record $2.163 trillion.

ETF.COM ANALYST BLOGS

By Dave Nadig

Buying and selling ETFs wisely means understanding the difference between being a buyer and a seller.

By Olivier Ludwig

Saving the world as an eco-conscious investor is a tough row to hoe, but ETFs make it a bit easier.

By Olivier Ludwig

If you’re puzzled by Israel’s relatively strong stock market performance, don’t forget you’re taking measure of a developed country.

By Olivier Ludwig

If only Fidelity could speak freely about all the positive things it does for investors.