Why is the gap between the price and net asset value greater on some index ETFs than on others?
Fundamentally, the perceived value of a fund’s shares may be less than the reported value of the fund’s underlying assets. In addition, poor performance, illiquid securities, poor name recognition, and large unrealized gains may prompt a fund to trade at a discount. Tracking error is also introduced through fees and expenses (which are not incorporated in the underlying indexes) and optimization rather than replication (due to compliance with the 40 Act).
