Single-country funds dominate the list of exchange-traded funds, or ETFs, which trade at discounts to their net asset values (also known as NAV). But ETF investors looking for international exposure beware -- just because the share price of an ETF is less than the sum of its parts does not mean it's a bargain.

When ranked according to their discounts from highest to lowest, seven of the top 10 funds -- and 12 of the top 20 -- were iShares MSCI indexed country funds. Leading the list were

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iShares MSCI Singapore Index Fund and

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iShares MSCI France Index Fund, which are currently trading at discounts of 2.5% and 0.95%, respectively. (See chart.)

Debbie Fuhr, ETF specialist at Morgan Stanley, says the average discount for an international ETF is between 30 and 40 basis points. She added, however, that even larger discounts are not unusual and are "based on U.S. investor sentiment toward the underlying market, which is closed during U.S. market hours."

Feng Ding, portfolio manager at Barclays Global Investors, the company behind the iShares single-country ETFs, agrees with Fuhr's analysis, saying "it's a difference in hours, not valuation" making it "extremely difficult to capitalize on the discrepancy."

An example of how time-zone differences affect the price of an ETF can be found with the

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iShares MSCI Japan Index Fund, which is currently trading at a discount of 0.72%. When the Japanese exchange closes at 3 a.m. EDT, the NAVs for Japanese stocks in the fund are calculated using closing security prices from local markets as well as

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foreign exchange rates taken at 4 p.m. London time.

Because the Japanese share prices are frozen when trading begins on the

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at 9:30 a.m. EDT, the iShares Japan Index Fund spends the day trading on new economic and political information, causing its share price to deviate in value from its underlying NAV at times. That's because the ETF shares trade independently in the U.S., while the underlying shares remain unchanged until Japanese trading resumes.

Unfortunately for arbitragers, the unique structure of ETFs makes it extremely difficult to exploit even slight differences between an ETF's price and its NAV. Unlike mutual funds, which are priced once a day at the 4 p.m. EDT close, ETFs are continuously priced throughout the day, effectively wringing out arbitrage opportunities that may arise due to stale pricing.

Furthermore, the market-makers who create and redeem ETFs have an additional mechanism for squeezing excessive discounts or premiums out of the share price. If an ETF is trading at too steep a discount, the market-maker can drive up the price by purchasing those ETF shares -- or, in other words, reducing supply -- and exchanging them for shares of the underlying stocks.

The inability of market-timers to capitalize on stale prices has made single-country ETFs a popular alternative to international open-end mutual funds.

The mutual fund scandal revealed market-timers were in some cases illegally dipping in and out of mutual funds hoping to profit from anticipated short-term market moves up or down. Because of time-zone differences among international stock markets, market-timers frequently targeted funds holding foreign stocks whose prices were stale.

Although the hurdles are higher for those trying to profit from the ETF pricing discrepancies, Ronald DeLegge, publisher of ETFmarket.com, says there are still opportunities for knowledgeable investors.

DeLegge cites a study done by the Analysis Group in 2001-02 that indicated international ETF quotes were, on average, revised only once an hour -- with the median interval between trades being 25 minutes.

"They also found that it took several hours, and in extreme cases several days, for larger premiums to disappear in international ETFs," says DeLegge. An ETF trades at a premium when its share price is higher than its NAV. If the imbalance becomes too great, as in DeLegge's example, then traders will sell the ETF until the price drops in line with the underlying share prices.

DeLegge says, "I suppose a trader, if savvy and patient enough, could find these opportunities."