Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 135

Dealing with time zones when pricing global ETFs

Many investors wonder how Exchange Traded Products (ETPs), including Exchange Traded Funds (ETFs), that track international markets are priced on the ASX when the underlying offshore markets are closed. Australians often find out how the US market has performed overnight by listening to the news whilst heading to work or reading the paper with their morning coffee. This can lead to some confusion, as although a news report might say the S&P 500 or the NASDAQ has moved by a certain percentage overnight, this price change is often not exactly reflected in the opening price of funds (which aim to track these indices) when the ASX starts trading from 10.00am.

A typical question we receive is “The S&P 500/NASDAQ etc. did +% or -% last night – why isn’t my fund doing the same?”

Futures markets continue to trade when stock exchanges are closed

There is a ready answer. These differences are explained by the differing time zones in which the international exchanges around the globe operate, and the fact that futures markets operate continuously around the clock even when certain exchanges are closed.

We’ll use the BetaShares NASDAQ 100 ETF (ASX Ticker: NDQ) as an example (and ignore the effect of currency fluctuations).

ML-Betashares Time-Zone-clocks

ML-Betashares Time-Zone-clocks

When tracking its benchmark index (the NASDAQ 100 Index), NDQ has performed well since inception. The chart below shows NDQ vs. the NASDAQ 100 Index. Although you can’t see it, there are actually two lines being plotted here (the two lines are virtually indistinguishable from each other).

Period 26 May 2015 to 30 September 2015. Source: BetaShares. Past performance is not an indicator of future performance. Period 26 May 2015 to 30 September 2015.
Source: BetaShares. Past performance is not an indicator of future performance.

Time zones and fund pricing

The charts below show the respective returns of the NASDAQ 100 Index and the Nasdaq 100 Futures Market on 1 September 2015 (NYC Time) and examine how these reconcile with the pricing of the BetaShares NASDAQ 100 ETF when it opened on the ASX on 2 September 2015.

At the close of the US ‘cash’ equities markets at 4pm (New York time) 1 September 2015, the value of NASDAQ 100 Index – based on shares trading on this market – was down 3.08% on its closing value of the previous day. This is the figure typically quoted in news reports in Australia over morning coffee. These reports will say, for example, “the Nasdaq closed down 3.08% today.”

ML-Betashares 061015_1-1024x445Yet it should be noted that the ASX market won’t open until 10am Sydney time, or around 4 hours (depending on daylight savings) after US equity markets have closed. Will the 3% decline in the market still be relevant? After all, market sensitive news is still being released. Indeed, it is often the case that companies release important new information after the US cash equities markets (like the New York Stock Exchange) have closed for the day.

New information is in the price when ASX opens

This new information is reflected in the NASDAQ 100 Futures Market, which continues to trade even after the US equity market has closed. The chart below shows the price of the NASDAQ 100 Futures. As might be evident, the futures price tracks the actual Nasdaq 100 cash index quite closely when US equity markets are open.

The gap between the second red line and the green line, however, shows the performance of the NASDAQ 100 Futures prices between the time of the US equity market’s close and the ASX open. As seen, on this day, the NASDAQ 100 Futures price rallied by 1.16% in this period, perhaps reflecting the release of some positive market news.

ML-Betashares 061015_2-1024x396Here’s the important point: the market makers involved in the Australian-listed NDQ ETF will set opening prices for the Fund with reference to the NASDAQ-100 Futures market as at ASX’s market open. It is the best indicator of fair value while the US equity market is closed.

The opening bid-offer prices of NDQ ETF will reflect the higher NASDAQ-100 Futures price at the time the ASX opens. What’s more, the closing bid-offer prices of NDQ ETF will reflect the price of Nasdaq-100 Futures at around the ASX close at 4pm Sydney time.

It follows that the overnight percentage changes will reflect the percentage changes in the NASDAQ-100 Futures price at the time of the ASX close the day before and at ASX open the following morning. Due to the timing gaps with the opening and closing times of the NYC, these movements will often not mirror those of the actual NASDAQ physical index.

To be precise, the actual opening and closing recorded prices of NDQ ETF will depend on the time at which the first and last trades take place on that day, which should be close to 10am and 4pm respectively though not necessarily exactly at those times. That means that if, for example, the last trade of NDQ ETF takes place at 3.45pm then the closing prices will be reflective of the Nasdaq-100 Futures price at 3.45pm.

 

Matthew Leung is a Business Development Associate at BetaShares Capital, a leading provider of Exchange-Traded Products. 


 

Leave a Comment:

     

RELATED ARTICLES

Will ETF liquidity be there when I need it?

$100 billion! Five reasons investors are flocking to ETFs

Thematic exposure to global trends using ASX

banner

Most viewed in recent weeks

Three steps to planning your spending in retirement

What happens when a superannuation expert sets up his own retirement portfolio using decades of knowledge? He finds he can afford much more investment risk in his portfolio than conventional thinking suggests.

Five stock recoveries not hanging on COVID predictions

The focus on predicting the recovery from the pandemic is the wrong emphasis. Better to identify great companies benefitting from market changes over a three- to five-year horizon with or without COVID.

Peak to peak, which LIC managers performed during COVID?

A comprehensive review of dozens of LICs shows how they performed in the crucial 'peak to peak' of COVID. This 14 months tested the mettle and strategies of a sector often under fire, with many strong results.

Finding sustainable dividend stocks on the ASX

There is a small universe of companies on the ASX which are reliable dividend payers over five years, are fairly valued and are classified as ‘negligible’ or ‘low’ on both ESG risk and carbon risk.

Blink and you missed a seismic shift in these stocks

Blink and it happened. If announcements in this sector were made by a producer of iron ore, gas, copper or some new tech, the news would have been splashed across the front pages. Have we witnessed a major change?

How inflation impacts different types of investments

A comprehensive study of the impact of inflation on returns from different assets over the past 120 years. The high returns in recent years are due to low inflation and falling rates but this ‘sweet spot’ is ending.

Latest Updates

Shares

Platinum’s four guiding investment principles

Buying mispriced stocks is often uncomfortable when companies are outside the spotlight and markets are driven by emotions. And it's inescapable that the price paid ultimately determines the end result.

Interviews

Andrew Lockhart on corporate loans as an income alternative

Loans to corporates were the traditional domain of banks, but as investors look for income alternatives to term deposits, funds have combined hundreds of loans into a single structure to create a diversified investment.

Retirement

10 things I learned in my faux-retirement

Pre-retirees should ‘trial run’ their retirements. All those things you want to do - play golf, time with the family, a hobby, write a book - might not be so appealing in reality, but you might discover other benefits.

Retirement

Achieving a sufficient retirement income portfolio

Retirees require a reliable income stream to replace the wages they received when they were working and should focus on the dollar income generated over time rather than the headline yield percentage.

'Wealth of Experience' podcast and ASA webinar on ETFs v LICs

Peter reveals some top stock picks with an emphasis on long-term assets like Sydney Airport, Graham discusses spending in retirement and valuing assets, the key to Amazon, guest Andrew Lockhart and plenty more.

Strategy

Lucy Turnbull’s three lessons on leadership and successful careers

From promoting women to boost culture to taking opportunities as they arise, Lucy Turnbull AO says markets should not drive decision-making and leaders must live and breathe the company's mission and values.

Economy

Are concerns about inflation inflated?

While REITs and some value stocks are considered 'inflation-sensitive' assets, the data provide little support that they are good inflation hedges, and energy stocks and commodities are too volatile. So what works?

Sponsors

Alliances

© 2021 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.