Exchange-traded funds typically don't stray far from their net asset values (NAVs). One of the greatest strengths of the ETF structure, the creation/redemption mechanism, makes it so the price of a fund stays close to the value of its underlying assets.
Usually, this process works flawlessly. Out of the nearly 2,000 ETFs on the U.S. market today, 83% of them are trading within 1% of their NAVs, while 94% of them are trading within 2% of their NAVs. For various reasons, the others have larger gaps between their market price and the value of their assets. Sometimes, those gaps are substantial.
New Creations Suspended
Take the DB Commodity Double Long ETN (DYY). The market price for this exchange-traded note is a whopping 97.3% above its NAV. The reason for this is simple: Deutsche Bank suspended creations of the notes indefinitely in 2012. Without the ability to create new units, the mechanism that would normally keep DYY trading close to its NAV is broken, and there's no way to arbitrage-away the massive premium.
It's not unheard of for ETN issuers to suspend creations. It's happened regularly over the years, and is something investors in these products should keep a close eye on.
The iPath Bloomberg Natural Gas Subindex Total Return ETN (GAZ), which has a 10.8% premium, is another ETN where creations were suspended, resulting in a market price well above NAV.
Fortunately, not too many investors own these flawed products. There are 45 exchange-traded products on the market that have suspended creations, but most are tiny, with only a few million dollars in assets each.
Stale Market Price Or NAV
Another reason that investors might see big discrepancies between a product's share price and its NAV is due to lack of trading. For example, the iPath Short Enhanced MSCI Emerging Markets Index ETN (EMSA) last traded in 2015, at a price of $110/share.
Since then, its NAV has dropped to around $57, seemingly creating a premium of 92.7% based on the last market price. But that premium isn't "real." Any new market transactions would likely happen much closer to the NAV; it's just that interest in the $1 million ETN is so low that no trades have taken place in more than a year.