Actively managed ETFs have surged in popularity in recent years. But the higher the heat, the more worth revisiting the premium issue: the “market price” you buy isn’t necessarily the ETF’s true “net asset value” (NAV). This article uses two actively managed ETFs from Uni-President Securities Trust: Active Uni-President Taiwan Stock Growth (00981A) and Active Uni-President Upgrade 50 (00403A), as examples from the official premium/discount data from the most recent quarter, to lay out the premium and the subscription/redemption mechanism clearly—then expands to the same issue that drew market debate when 0050 was split last year.
The premium/discount of 00981A and 00403A
NAV (net asset value) is the per-unit true value of a fund’s assets that the fund company settles daily after the market closes; market price is the price at which investors trade and match orders on the secondary market. When an ETF’s market price is higher than its NAV, it is called a premium; when its market price is lower than its NAV, it is a discount. Generally, the two move toward each other. When they don’t match, arbitrage opportunities arise to bring them back in line.
00981A (Active Uni-President Taiwan Stock Growth) is a mature underlying; its premium/discount converges
According to Uni-President Securities Trust’s “premium/discount range for the most recent quarter” data (from 115/02/23 to 115/05/15, 56 trading days), 00981A’s premium/discount amplitude averaged about +0.26%, with premiums on 45 days and discounts on 11 days. The volatility range is fairly tight.
On the vast majority of trading days, it stayed within ±1%. The maximum premium occurred on 115/04/20 at +1.29% (market price 25.98 vs NAV 25.65). The maximum discount was -0.64% on 115/04/29. For an ETF that is large in scale and has sufficient trading volume, this is a healthy picture: the market price stays close to NAV, so investors don’t really need to worry about “overpaying.”
00403A (Active Uni-President Upgrade 50) shows a premium on its listing day
The data for 00403A covers only 5 days (115/05/11 to 05/15) because it was listed on May 12. And exactly on the first listing day, there is a number worth highlighting:
Date | Market Price | NAV | Premium/Discount Range
115/05/11 10.20 10.20 0.00%
115/05/12 (Listing Day) 10.80 10.24 +5.47%
115/05/13 10.18 10.11 +0.69%
115/05/14 10.24 10.21 +0.29%
115/05/15 10.00 9.93 +0.70%
The premium on the listing day surged to +5.47%. That means for anyone who chased in using the market price that day, they effectively bought an asset with real value of only 10.24 using a price of 10.80—paying about 5% more. But the key is what happened in the next three days: the premium quickly converged back to within 1%. This “spike up → converge” trajectory is evidence that the ETF subscription/redemption mechanism is working.
Two markets of an ETF, and the “subscription/redemption” mechanism
ETFs exist in two trading channels at the same time. Investors can trade ETFs freely in the secondary market at market prices using existing brokerage securities accounts, just like buying and selling stocks. They can also, through the primary market, use the ETF’s true value (NAV) to make large creations/redemptions with the issuer. In general, retail investors almost all trade in the secondary market. The subscription/redemption in the primary market follows a different set of rules.
ETF subscription/redemption is divided into “in-kind subscription/redemption” and “cash subscription/redemption.” In-kind subscription means delivering a basket of stocks to the participating securities firm in exchange for a certain number of ETF units. In-kind redemption means exchanging ETF units back into a basket of stocks.
To conduct subscription/redemption in the primary market, investors must do so via an authorized “Participating Securities Firm” (PD). The issuer sets a minimum quantity requirement for primary-market trades, called the “creation/redemption base.” And this base is not small: for most exchange-listed and over-the-counter ETFs, the base is often 500k beneficial unit equivalents (i.e., 500 lots). That typically requires tens of millions in capital, so in practice it’s mainly corporations or large-asset investors who can participate.
How does subscription/redemption “eliminate” the premium?
Let’s return to the +5.47% premium on 00403A’s listing day. How was this spread wiped out within three days? The answer is arbitrage.
When an ETF’s market price in the secondary market is higher than its NAV in the primary market (i.e., when there is a premium), in theory you can subscribe to the ETF in the primary market using a lower NAV—or the corresponding basket of stocks—then sell it in the secondary market at the higher market price, capturing the price difference. Conversely, when there is a discount, you can buy in the secondary market at the lower market price and then redeem in the primary market at the higher NAV.
The key is that this arbitrage action self-corrects. By subscribing in the primary market and increasing the ETF’s market liquidity, arbitrageurs then sell off in the secondary market; the selling pressure pushes the market price down and brings it back toward NAV. The subscription/redemption mechanism functions to shrink the ETF’s premium/discount. Institutional investors can arbitrage between the ETF’s market price and NAV through subscription and redemption, causing the ETF price to trend toward NAV. That’s why, on the second day, 00403A’s premium naturally converged from +5.47% to +0.69%—a direct consequence of the mechanism’s design.
But there are two caveats that investors here must know.
Arbitrage is not something retail investors can easily play. Executing an arbitrage strategy requires considering stock transaction taxes, commissions, subscription/redemption fees, and market impact costs. During the process, transaction risks can also arise if operations cannot be synchronized. Therefore, most individual investors find it difficult to participate in the arbitrage mechanism. What retail investors can do is not “arbitrage,” but instead “avoid premium periods.” When you see a premium of +5% on the listing day, choose not to chase—wait for it to converge.
But premiums don’t always converge back. The prerequisite for arbitrage is that institutions can “get” the ETF through subscription. It often happens that an ETF runs at a large premium, but it takes time to come close to NAV—possibly because the “ETF issuance quota is already filled,” meaning institutional investors can’t subscribe enough ETF units in the primary market to run the arbitrage. Once the issuer applies for additional issuance quota to the stock exchange, the premium can effectively converge. But by that time, ETF holders may suffer losses from the price difference as the market price drops quickly.
Further Reading: When 0050 was split into four last year, the market also debated the same issue
This logic of “premium and subscription arbitrage” was actually discussed intensely by the market when 0050 was split last year.
(If Taiwan’s National ETF 0050 is split into four, could there be a premium arbitrage space? Finance influencer reveals: big players use the subscription mechanism for arbitrage)
In June 2025, after Yuanta Taiwan 50 (0050) paused trading from June 11 to June 17, it completed the stock split into four shares in the ratio on June 18. The prior closing price was 188.65; after the split, it opened at 47.25 and closed at 47.57. Splitting one stock into four means the number of shares becomes four times, and the price per share becomes one quarter. The value of the position and the underlying essence remain unchanged.
At the time, the market had a concern: with a lower per-share price and a lower entry threshold, would the inflow of buying interest push the market price up and create a premium? In response, the finance Facebook page “Sandwich Man’s Personal Finance Notes” said that if the premium is huge, it can be arbitraged via subscriptions: after buying the constituent stocks in the market and then converting them into an equivalent amount of 0050, the 0050 obtained at the original price can quickly be sold in the market at a premium. By using subscriptions to offset the price difference, there would actually be no impact.
What’s said here is exactly the same mechanism we see with 00403A. Whether it’s the passive 0050 or the active 00403A, as long as it’s a Taiwan stock ETF, in-kind subscription/redemption in the primary market brings the market price back to NAV. The difference is only that 0050 is enormous in scale and involves many participating securities firms, so arbitrage is nearly instantaneous. For newly listed, topic-hot active ETFs, the premium may surge more aggressively, and the time lag before convergence is also more worth warning retail investors about.
This article: Things to note before buying an actively managed ETF—how to read the premiums of 00403A and 00981A? How subscription/redemption works—first appeared on Chain News ABMedia.
