ETF Indicative Value trackers

[FUEGO]

I've been slowly increasing my ETF investing over the last year.

Apparently a number of ETF's release price data called "intraday indicative value" or "indicative value" (IIV or IV) or underlying value. My understanding of what the indicative value reflects is the last sold prices of the basket of securities held in the ETF plus any cash added to the ETF.

For example, two recent purchases of mine have their usual tickers that show current prices and bid/ask prices, such as WPS and SCZ. And they also have tickers that reflect the indicative value (IV) such as WPS-IV and SCZ-IV (^WPS-IV and ^SCZ-IV for you yahoo finance users).

My questions are: how reliable are the IV values, and are you able to successfully use IV values to make sure you aren't paying a large premium vs. underlying value (and aren't selling at a large discount vs. underlying value)?

In addition, if the IV reflects last sale prices of the basket of securities held in the ETF, how well does it really reflect international equity prices that may not be trading on any open markets during the 9:30 a - 4:00 pm EST US market hours (assuming no ADR's are available)?

Is there a better way to determine intraday premium/discounts between market price and NAV? Or is IV a good proxy for intraday NAV?

Thanks.

 

[FUEGO]

Bump. Can anyone help me? Oh Masters of ETF's please opine. Or point me in the direction of some good reading material.

 

[LOL!]

My opinion is that the IV of thinly traded foreign-based ETFs like SCZ is always very stale and not a useful metric. For heavily traded ETFs like SPY, IWM, EEM, EFA the IV is probably legitimate, but for these ETFs you also don't need it because the bid/ask spread is often less than 1 cent.

So when I am trading a small-cap foreign ETF like DLS or GWX, I generally
(1) Select ETFs with more volume
(2) Trade on a day when the volume is above average and around 100K shares already
(3) Look (i.e. plot) the intraday prices and their action of DLS, GWX along more heavily traded ETFs like EEM, SPY, EFA to make sure that percentage movements are similar.
(4) When buying, purchase the ETF which has dropped the most relative to other similar investments and when selling, sell the ETF which is up the most relative to other similar investments.
(5) Try to use limit orders and to use real-time Level II quotes and plotting to see what the current book and action is.

 

[FinanceDude]

Bump. Can anyone help me? Oh Masters of ETF's please opine. Or point me in the direction of some good reading material.

Here's some info:


Rydex Investments :: ETF Essentials

 

[FUEGO]

LOL, thanks for the insight. A few follow ups:

Regarding IV for thinly traded foreign issues and it being a stale metric, what leads you to believe this? I empirically agree since I see very little movement in the IV throughout the day even though the dow, SP500, Russell 2000 etc moves a lot during the day. Is it that the IV doesn't have fresh price quotes on foreign traded securities without a domestically traded ADR?

Where do you get your L II quotes from? Does anyone know if Fidelity offers these with their basic package or as an add-on?

Financedude, thanks for the link. It looks like a lot of their info is what I had seen from my google research before.

In hindsight, I realized I did really well and bought both SCZ and WPS at a significant discount to NAV. But I bought at 2:00 pm and obtained the funds for these trades from the sale of a traditional mutual fund which was priced at 4:00 pm. Unfortunately the whole market started sliding in this 2 hour period and I lost another few percent because of this poor execution on my behalf. You win some, you lose some I guess.

 

[LOL!]

...Is it that the IV doesn't have fresh price quotes on foreign traded securities without a domestically traded ADR?

That is what I believe.

Where do you get your L II quotes from?

I get them from one of my brokers, TDAmeritrade which has a nice trading cockpit.