Net asset value (NAV) is the per-share value of an investment fund’s underlying holdings. Calculate it as total assets minus liabilities, divided by shares outstanding. For example, $1 billion of assets and 100 million shares imply a NAV of $10 per share. section 4.1.2
An ETF’s exchange price can differ from its NAV because trading prices respond to supply and demand. A price above NAV is a premium; a price below NAV is a discount. section 4.1.2
The difference between market price and NAV has practical consequences:
- Creation and redemption let authorized participants exchange an ETF share for its underlying basket, helping limit price deviations from NAV. section 4.1.2
- Premiums and discounts are more likely to grow or persist when underlying holdings are illiquid, costly to trade, or subject to high creation/redemption fees. section 4.1.3
- A predictable premium may be tolerable, but changing from a premium to a discount increases uncertainty in investment returns. section 4.1.3
A fund’s NAV
Suppose a fund owns $600 million of Stock A, $300 million of Stock B, and $100 million of Stock C. With $1 billion in total NAV and 100 million shares outstanding, each share has a $10 NAV. The ETF might nevertheless trade at $10.05 or $10.25. section 4.1.2
Table 4.1 Sector weights in the market and optimized portfolios
| Stock | Shares | Share price | Value |
| A | 15,000,000 | $40 | $600,000,000 |
| B | 3,000,000 | $100 | $300,000,000 |
| C | 2,000,000 | $50 | $100,000,000 |
Inspect the holding-level inputs used to derive a fund’s total asset value and per-share NAV. section 4.1.2
