When Markets Are Closed, What Is Your International ETF Really Worth?

Last month offered investors another reminder of how quickly the outlook for an overseas market can change while its local exchange is closed. Geopolitical developments that stood to impact two of Asia’s largest equity markets included renewed US-China tariff uncertainty and an unexpected shift in US-South Korea military exercises.

So what is the value of an exchange-traded fund (ETF) that accesses markets in other parts of the world, particularly when those markets don't have the opportunity to react to news at the same time? This timing gap raises an important question that comes up periodically in client conversations: When an overseas market is closed, what’s an international ETF actually worth?

Consider how the trading day unfolds. An international ETF may continue trading on its listing exchange after the markets for its underlying securities have closed for the day. A South Korea or China equity ETF trading in New York or Europe, for example, can continue responding to trade policy, geopolitics, economic data or moves in global markets even though many of its holdings are no longer trading. This helps explain something investors sometimes find puzzling: why a fund's market price can at times diverge from its reported net asset value (NAV)—and where fair value pricing enters the picture.

Two Prices, Two Clocks

An ETF essentially has two measures of value. Its market price is what investors are willing to pay for its shares on an exchange and that price changes continuously throughout the trading day. Its net asset value (NAV), meanwhile, represents the calculated value of the securities the fund owns. For an international ETF, many of those securities may have stopped trading hours earlier. So suppose, hypothetically, that Korean stocks close 3% higher for the day. Several hours later, while an ETF tracking Korean equities is still trading on its listing exchange, fresh market-moving news causes global equities to fall sharply. Korean stocks cannot immediately react because their local market is closed. But the ETF can.

Market makers and other investors can incorporate the new information into the price they are willing to pay for the ETF. As a result, the ETF’s market price may fall even though a NAV based on Korean closing prices still reflects the earlier 3% gain.

This can make the ETF appear to trade at a significant "discount" to NAV. But the difference doesn't necessarily mean the ETF is mispriced. In fact, the ETF is generally doing exactly what an exchange-traded security is designed to do: provide real-time price discovery.

Fair Value Pricing

Many international funds address this timing mismatch through fair value (FV) pricing. Rather than simply using the closing prices from the local market, a FV methodology estimates how those securities might have traded had their home market remained open. The appeal is intuitive: a local closing price from hours earlier may no longer reflect everything markets now know.

But "fair value" should not be confused with a uniquely correct value. The local closing price is an observable market price. FV is a model-derived estimate, and there is no single industry standard for producing it. Different methodologies can use different inputs and produce different answers.

More importantly, proprietary FV models may not be fully transparent or independently replicable by the authorized participants (APs)¹ and market makers² that facilitate ETF trading. In our experience, these market participants place considerable value on transparency around how an ETF’s NAV will be determined. If they cannot fully replicate a valuation methodology, they face another variable to estimate—and uncertainty has a cost, which ultimately can translate into higher trading costs.

A more current estimate is not necessarily a more transparent price.

Fair value pricing can also make it harder to assess how effectively an index portfolio is actually tracking its benchmark. If the index uses local closing prices while the ETF’s NAV reflects model-derived FV adjustments, some of the resulting tracking difference may simply reflect two different valuation methodologies rather than portfolio management decisions. Closely tracking an index is not simply an automated exercise. Portfolio managers must navigate rebalances, corporate actions, cash flows and trading across different markets while seeking to minimize unintended deviations from the benchmark. A consistent valuation approach can give investors a clearer view of how effectively that work is being done. That’s why we do not believe international ETFs necessarily need to be systematically fair valued every day. Our index approach emphasizes transparency and consistency—not only in how an ETF is valued, but in how effectively our portfolio management team delivers the index exposure investors expect.

There is also a practical issue in markets such as India and South Korea, where the securities needed for certain ETF transactions cannot simply be exchanged directly between the fund and an AP. Instead, the AP provides cash and the underlying securities are traded when the local market is open.

So if a model estimates that Korean stocks have moved substantially after Seoul closes, that estimate is not necessarily a price at which those securities can actually be bought or sold. The underlying market is closed. When it reopens, execution takes place at available market prices, with the costs associated with that trading borne by the AP rather than passed on to the fund.

In other words, FV may estimate how much prices might have moved since the local market closed, but it does not represent a price at which the underlying securities can actually be traded while that market remains closed.

This is another reason we view FV as a tool rather than an automatic daily overlay. It can play an important role in exceptional circumstances where observable market prices are unavailable or clearly unreliable—for example, during trading halts or significant market disruptions. Under normal market conditions, however, observable prices provide a consistent basis for valuation, while the ETF’s market price can continue incorporating new information as it arrives.

For investors comparing international ETFs, the valuation process is therefore worth understanding. Is the NAV methodology transparent and replicable? Can APs and market makers anticipate how a fund will be valued? And is FV used when observable prices genuinely become unreliable, or systematically applied as another modeling layer?

Since global markets never operate on one clock, often while one market sleeps, another is digesting the latest economic, policy or geopolitical development. In our view, the goal should not be to make every valuation measure look identical at every moment. It should be to maintain a valuation process that is disciplined and predictable, while allowing the ETF structure to do what’s particularly useful: continue providing price discovery even when the underlying market has stopped trading for the day.