Why can the price of the same ETF appear different? In a previous article, we explained that active ETFs can be bought and sold during trading hours, which leads some readers to ask: How can I tell if the price is fair when I trade intraday?

If you have invested in ETFs, you may have noticed a phenomenon: the same ETF has an indicative optimized portfolio value (IOPV) of 1 yuan, yet its secondary market trading price might be 1.03 yuan or 0.98 yuan. Why does one fund have two prices? Let's break it down today.

What exactly is the IOPV and how do you judge the price?

For passively managed ETFs, investors can refer to index movements. However, active ETFs do not track an index, making intraday price judgment more challenging. This is where the IOPV comes into play.

Think of the IOPV as an intraday "reference price" for the ETF. In contrast, the price you see in your trading software is the "market price" formed by investor buying and selling on the exchange. When these two differ, we get what is commonly called a premium or discount: a market price above the IOPV is a premium, while a market price below it is a discount.

Premiums and discounts are not mysterious. Essentially, they represent a gap between the market trading price and the fund's reference value. This raises a question: does a premium mean you are overpaying, and does a discount mean you are getting a bargain? The answer is: you cannot judge based on just one number.

Why do premiums and discounts occur?

Imagine an ETF as a concert ticket. The face value is fixed, but at different times, the price on the secondary market may be higher or lower than that face value. ETF trading prices behave similarly. When buying demand for an ETF increases noticeably over a period, the secondary market price may rise above the IOPV, creating a premium. When selling pressure concentrates, the price may fall below the IOPV, creating a discount.

Additionally, ETF prices are influenced by market liquidity, the trading conditions of underlying assets, subscription and redemption arrangements, and market volatility. Therefore, when you see a premium or discount, it is not wise to simply interpret it as "premium means expensive, discount means cheap." A more accurate understanding is that premiums and discounts reflect the deviation between the market trading price and the reference value at a specific point in time.

This is especially true for active ETFs. Since fund managers actively adjust portfolios based on investment strategies, holdings are not mechanically replicated from an index. Investors observing the IOPV should note that it is only an intraday reference value and does not equal the final net asset value of the fund.

Should you chase a premium or bargain-hunt a discount?

First, look at the premium. If an ETF's IOPV is 1 yuan but the market price reaches 1.05 yuan, you are spending 1.05 yuan to buy a fund share with a reference value of about 1 yuan. The extra 5 cents does not mean the fund's holdings suddenly gained 5% in value; it may just reflect a temporarily high trading price. If market sentiment later shifts and the trading price falls while the fund's net value remains relatively unchanged, investors could still suffer losses due to a narrowing premium. The real danger of a high premium is not that the fund will definitely decline, but that even without a significant drop in the fund itself, an excessive premium may retreat. When fund managers issue premium risk warnings, you should read them carefully and fully understand the related risks.

Second, consider the discount. If the IOPV is 1 yuan but the market price is only 0.97 yuan, many people's first reaction is "a 3% discount, buy immediately." However, a discount only tells you that the current market trading price is below the reference value; it does not directly indicate that the fund will rise in the future. Why does a discount occur? It could be due to short-term pessimistic market sentiment, or it could be related to ETF liquidity and the trading conditions of underlying assets. For ETFs with weaker liquidity, bid and ask prices are more easily affected by supply and demand. So, when you see a discount, rather than asking "is it cheap?" ask yourself "why is there a discount?" Without understanding the reason, you cannot simply treat a discount as an investment opportunity.

How should you view premiums and discounts when investing in active ETFs?

For ordinary investors, there is no need to overcomplicate premium and discount analysis. Remember these four points.

First, check the premium or discount rate. Before buying or selling an ETF, pay attention to the IOPV, trading price, and premium/discount rate shown in your trading software. Be cautious when there is a noticeable deviation.

Second, do not blindly chase highs when a premium is present. A high premium means the market price is significantly above the reference value. If the premium narrows later, investors may face losses even if the fund's net value does not change much.

Third, do not rush to bottom-fish when a discount appears. A discount only indicates the price is below the reference value; it does not prove the fund is worth buying. Understanding the reason behind the discount is more important.

Fourth, pay attention to fund announcements. When fund managers issue risk warnings about abnormal premiums or discounts, investors should promptly review the relevant notices, fully understand the product risks and trading conditions, and then make careful investment decisions.

A final takeaway

If you compare an active ETF to a product: the fund's net value is its intrinsic "value," the secondary market price is what the market is willing to "pay" at that moment, and the premium or discount is the temporary gap between these two prices. So, when you see a "premium," do not rush to chase it; when you see a "discount," do not rush to buy. Premiums and discounts are not buy or sell signals; they are pieces of price information that investors should monitor.

For ordinary investors, taking an extra look at the premium or discount rate before trading active ETFs, reading risk warnings thoroughly, and curbing impulses to "chase rallies" or "hunt for bargains" may be a more valuable investment skill. Understand the price first, then make your decision. Active E-points, opening a new investment perspective!

Risk Disclosure: The views expressed herein are for reference only and are subject to change with market conditions. They do not constitute any investment advice or commitment. The products mentioned in this article are equity funds, which are securities investment fund products with relatively high expected risk and expected return. Their expected returns and risk levels are higher than those of hybrid funds, bond funds, and money market funds. Before purchasing any related fund product, please carefully read the fund's Contract, Prospectus, and other legal documents, and choose a product that matches your risk level. Funds carry risks; invest with caution.