Premium and discount to NAV

A premium or discount to net asset value describes the gap between a fund's market price, the price at which its shares actually trade, and its net asset value, the calculated worth of the securities it holds. A fund trading at a premium has a market price higher than its NAV, while a fund trading at a discount has a market price lower than its NAV.

For most ETFs, this gap stays small and temporary, since authorized participants can profit from creation and redemption whenever the market price strays meaningfully from NAV, which pushes the price back in line. Closed-end funds behave differently, because their fixed share count means there is no equivalent arbitrage mechanism forcing price back toward NAV, so a closed-end fund can trade at a persistent, sometimes wide, premium or discount for extended periods, driven by shifting investor sentiment toward the fund rather than any short-term mispricing.

A meaningful and widening discount can sometimes reflect real concerns about a fund, such as its holdings, its manager, or the reliability of its NAV calculation, but a discount can also simply reflect that closed-end fund shares, like any other security, are subject to their own supply and demand separate from the value of what they hold. Some investors specifically seek out closed-end funds trading at unusually wide discounts as a value opportunity, betting the gap will eventually narrow, though there is no guarantee that it will, or when.