What is Net Asset Value and 'iNAV'? | BetaShares

What is Net Asset Value and ‘iNAV’?

BY betashares | 24 February 2014
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What is the NAV?

For any investment in an ETF we can assess its “fair value” by comparing the market price for units (ie the price quoted on the ASX at which you can buy or sell) with the ETF’s “net asset value” or “NAV” per unit.  The NAV is essentially the market value of the ETF’s component assets (eg 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 can be a great guide as to whether the market price for the ETF quoted on the ASX is over or underpriced.

How to work out the NAV

Imagine an ETF with 100 million units on issue, with each unit trading on the ASX at a current price of $1 per unit. If the units are trading in line with their net asset value, this means that the net value of the assets in the ETF will be exactly 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.”

In our BetaShares Academy companion piece on ETF liquidity we showed how the “open-ended” nature of ETFs means the units should trade closely in line with the “net asset value” of the fund. In contrast, we showed how a “closed-ended” investment – like a share in a company – can and often does trade above or below “net asset value” simply due to changing supply and demand.

The difference between the NAV and iNAV

To help ETF investors assess whether an ETF’s market price is in line with the “net asset value”, most ETF issuers provide a real time indication of net asset value. 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 an investor with an independent indication of the ‘fair value’ of the ETF – in real time.

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The iNAV is very helpful for investors when it comes to trading ETFs. Potential investors can simply 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 compared to its iNAV, you should always take account of this bid/offer spread. The iNAV then, is a very helpful tool in helping investors trade ETFs with confidence that they are getting ‘a fair deal’.

6 Comments

  1. peter walsh  |  May 7, 2018

    where do I find INAV for NDQ please ?

    1. Alex Cook  |  May 28, 2018

      Hi Peter,
      Thanks for your enquiry. Please note that since NDQ is an international fund, it does not have an INAV.

  2. Hi there,
    General question – how is iNAV calculated where the underlying securities are traded on markets that are shut during ASX trading hours, eg the US?

    1. Benjamin Smith  |  March 20, 2020

      Hi Ben,

      Thanks for reaching out.

      Our international funds typically do not have an iNAV, as the underlying holdings do not trade at the same time as the ETFs do.
      Take for example our NASDAQ 100 ETF (NDQ). As the underlying holdings are traded in the US in a different time zone, an iNAV cannot be obtained. Instead, the unit price of the fund when it is trading will be based on the NASDAQ 100 futures market, which track expectations of the value of the NASDAQ outside of market hours. These contracts trade almost 24 hours a day.

      Sincerely,

      BetaShares Client Services

  3. ALESSANDRO ESPOSITO  |  April 6, 2020

    What is considered a fair/good spread in the iNAV ? 1%, 2%? 5%?

    thanks

    1. Benjamin Smith  |  April 7, 2020

      Hi Alessandro,

      Thanks for reaching out.

      The bid/offer spread on an ETF is determined by the market makers of the fund. For ETFs with highly liquid and accessible underlying assets, this spread will typically be very small. For example, our Australia 200 ETF (A200) will often have a spread of only a few cents (which equates to approximately 0.1%). Spreads will vary across products and even time of day. You can find a bit more information on these variations in one of our blog posts: https://www.betashares.com.au/insights/etfs-101-understanding-etf-bid-and-offer-spreads/.

      Sincerely,

      BetaShares Client Services

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