What is an ETF’s Net Asset Value and ‘iNAV’?

You can assess whether an ETF is trading at fair value by comparing the market price for units (i.e. the price quoted on the ASX at which you can buy or sell) with the ETF’s net asset value (NAV) per unit.

The NAV is essentially the market value of the ETF’s component assets (e.g. shares in the case of an equities ETF) minus management fees, expenses and any other liabilities.

The NAV should be an accurate appraisal of the real value of the assets of the fund and is a guide as to whether the market price for the ETF quoted on the ASX is fair.

Consider an ETF with 100 million units on issue, with each unit trading on the ASX at a price of $1. If the units are trading in line with their NAV, this means that the net value of the assets in the ETF will be equal to $100 million.

After allowing for a small margin between the buy and sell price (known as ‘the spread’), if the units are trading above $1 per unit then the units are said to be trading ‘above fair value’, whereas if the units are trading below $1 per unit then the units are said to be trading ‘below fair value’.

The open-ended nature of ETFs means the units should trade closely in line with the NAV of the fund. In contrast, a closed-ended investment – like a share in a company – can and often does trade above or below NAV simply due to changing supply and demand.

To help ETF investors assess whether an ETF’s market price is in line with the NAV, most ETF issuers provide a real time indication of NAV. Because this calculation changes in real-time, the calculated number is normally called the ‘iNAV’ – an abbreviation for ‘indicative net asset value’.

The iNAV calculation is normally provided by a third-party calculation agent, who has access to the prices of the ETF’s underlying securities and assets.

The calculation agent uses market data feeds to determine the current market value of the assets of the ETF. This provides investors with an independent indication of the fair value of the ETF – in real time.

^{A screenshot from our website showing a live iNAV of one of our funds}

The iNAV is very helpful for investors when it comes to trading ETFs. Investors can compare the iNAV to the price at which they can buy or sell ETF units on the market – if the values are close then the investor can elect to trade at that price.

Of course, all ETFs (and other investments like shares or unlisted managed funds) are subject to a ‘spread’ between the bid and offer price.

When you assess how closely an ETF unit is trading to its iNAV, you should always take account of this bid/offer spread. The iNAV then, is a helpful tool in helping investors trade ETFs with confidence that they are getting ‘a fair deal’.