ETF's NAV - Fidelity

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Mutual Funds and Mutual Fund Investing - Fidelity Investments

Clicking a link will open a new window. To establish a daily NAV, the fund chooses a time, every day, at which to value its assets. For a traditional equity ETF, the NAV is calculated (or “struck”) once all the markets being tracked by the ETF’s index have closed. For an ETF tracking US equities, for example, the NAV can be calculated soon after the US market’s 4:00 p.m. ET close. At that time, the closing price of each of the fund’s assets is recorded as an indication of its current value. All these prices are then aggregated to arrive at the value of the fund’s entire portfolio.

NAV s shortcomings

Challenges arise when an ETF holds securities trading in a different time zone, because NAV is based on the last price when the exchange closes. For example, an ETF that trades on the NYSE but tracks the FTSE 100 will hold securities trading on the London Stock Exchange. The London Stock Exchange closes at 11:30 a.m. ET—at which point the fund’s NAV is “struck.” However, for another 4 1/2 hours, the ETF will still be trading on the NYSE. A lot can happen in 4 1/2 hours that could affect the value of the ETF. However, NAV will remain stationary (because the LSE is closed), and only the ETF will reflect any changes in value over the 4 1/2 hours. In this case, value has changed, but NAV has not, and as a result, NAV is “stale,” and differences between the ETF’s trading price and its NAV can appear. Using closing exchange prices is all well and good for equity securities, but what about bonds? For bond ETFs, bid prices (the price at which the ETF could sell its bonds) are often used, meaning that the NAV may seem lower than a valuation based on mid-point or offer prices.

iNAV

Distinct from an ETF’s official, once-a-day NAV is the intraday or indicative NAV (often called “iNAV”). This is a measure of an ETF’s intraday value, with the prices used in the NAV calculation updated for real-time market movements, and published several times a minute. iNAVs are often calculated by third-party commercial data vendors and disseminated by Europe’s stock exchanges. Many financial advisors offer their clients access to real-time iNAVs on ETFs, which can then be compared with ETF prices. iNAVs can be a useful measure of value when you’re looking to trade an ETF, although they’re not foolproof and, similarly to NAVs, may not reflect true value if prices become stale.

And one final note

ETF NAVs and iNAVs are always calculated in the base (accounting) currency of the fund. If the ETF you’re looking at has share classes in different currencies, you may need to make a currency conversion to determine if a fund is trading at a premium or discount.

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Your e-mail has been sent. Article copyright 2014 by ETF.com. Reprinted with permission from ETF.com. The statements and opinions expressed in this article are those of the author. Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data. ETFs are subject to market fluctuation and the risks of their underlying investments. ETFs are subject to management fees and other expenses. Exchange-traded products (ETPs) are subject to market volatility and the risks of their underlying securities, which may include the risks associated with investing in smaller companies, foreign securities, commodities, and fixed income investments. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. ETPs that target a small universe of securities, such as a specific region or market sector, are generally subject to greater market volatility, as well as to the specific risks associated with that sector, region, or other focus. ETPs that use derivatives, leverage, or complex investment strategies are subject to additional risks. The return of an index ETP is usually different from that of the index it tracks because of fees, expenses, and tracking error. An ETP may trade at a premium or discount to its net asset value (NAV) (or indicative value in the case of exchange-traded notes). The degree of liquidity can vary significantly from one ETP to another and losses may be magnified if no liquid market exists for the ETP's shares when attempting to sell them. Each ETP has a unique risk profile, detailed in its prospectus, offering circular, or similar material, which should be considered carefully when making investment decisions. 700886.4.0

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