A recent question from an investor on NAV was very interesting as it highlights some technical areas around ETFs which most people are not aware of. Simply the NAV is the total value of the securities in the ETF divided by the units on issue. For traditional ETFs that hold all the shares and even for ETFs that sample an index and hold a group of shares the calulation is relatively simple. The custodian at the end of the day will value the shares or securities (including any other components of the portfolio that provide value which may be small amounts of cash or other) in the ETF and divide by the number of units on issue. For example lets say an ETF had $100 of total value in the underlying portfolio and there were 10 units on issue. NAV would then be $100 divided by 10 = $10 per unit. The question that was received was more about the NAV of the underlying securities in the portfolio vs the on market value of the securities. A good example provided was; For the SPDR SLF property ETF.
Question "I assume the NAV is the net asset values of the actual shares in the index and not the actual NAVs of the individual shares in the parcel? Do you provide any information regarding the underlying NAV of SLF based on the underlying shares? For example, BWP had a closing price of $1.705 on 1/02/10 while NAV was $1.79."
Answer, is NO, the ETF manager does not provide analysis of the NAV of the underlying securities in the SLF property ETF. Most people will recognise that a lot of Listed Property Trusts trade at a discount to their intrinsic NAV. The SLF ETF only accesses the on market value of the securities to calculate its NAV. This is because the ETF is designed to match the price index provided by Standard and Poors which in trun only views the on market price to calculate the market weight of each security in the index. SLF is not an accumulation ETF it is a price index ETF. That means it holds any received distributions in cash and pays this out quarterly to investors. So for SLF there will be the on market value of the shares plus the value of the cash account.
