How to Calculate the Value of an ETF (2024)

Exchange traded funds, better known by the acronym ETFs, are a good way to gain exposure to several individual stocks without taking positions in any one of them on an individual basis.Unlike mutual funds, ETFs trade throughout the day, just like the underlying stock holdings.

So, while investing in an ETF is a good way to get broad exposure to stocks, bonds, or commodities without taking on specific risk, calculating performance may be a bit tricky.

Key Takeaways

  • Exchange-traded funds (ETFs) hold a portfolio of stocks, much like a mutual fund, but trade throughout the day on stock exchanges.
  • Despite this difference, ETFs are still valued based on their net asset value (NAV), which depends on the prices of the positions that it holds.
  • While the market price of an ETF may deviate somewhat from the NAV, arbitrage tends to keep these deviations minimal, especially in more liquid ETFs.

Net Asset Value

Both mutual funds and ETFs calculate the net asset value (NAV) at 4 p.m. Eastern time each trading day.The NAV is the value of each share measured by the value of all the fund’s underlying holdings at their closing prices. However, because the ETF trades throughout the day, there are times when the NAV and the actual market price differ, although the differences tend to be minuscule.

Therefore, for calculation purposes, the most readily available measure to use is the NAV, but if you need to calculate more precise performance, then you can use the intraday or indicative net asset value (iNAV), if available.The iNAV reports the net asset value approximately every 15 seconds throughout the day, but instead of using the closing price, it reflects the current price.

One of the benefits of investing in an ETF is that it is often actively traded, which should compensate for the minimal dispersion between the actual bid/ask spreads and traded bid/ask spreads that make up the variance between market value and NAV.

Calculation

At any given moment, the market price of an ETF depends on the supply (selling) and demand (buying) in the market. However, the net asset value of the portfolio of stocks that the ETF represents matters, since if the market price rises or falls significantly from the NAV, then institutional investors will engage in creations and redemptions that arbitrage the price back closer to its NAV.

Therefore, we can assume that the difference between an ETF's market price and its NAV will be very small, if any.

Let’s consider an example of an investment in a hypothetical ETF simply called “A.” Say the price of ETF A is $100 and you buy 50 shares for a total cost of $5,000 ($100×50).Three months later, the price is $115.Your 50 shares are now worth $5,750 ($115×50) for a profit of $750 ($5,750-$5,000); and the holding period return is ($5,750-$5,000)/$5,000=15%. The NAV in many cases will be the same as price, but it may differ. However, the price that determines how much you get for your shares is the ETF price and not the NAV.

So how, then, is an ETF’s daily NAV computed? This value is taken from the most recent closing prices of the holdings of the ETF (on a weighted basis) plus any cash that it holds. Then, deduct any liabilities that the ETF may have on its balance sheet and divide that amount by the number of ETF shares outstanding.

NAV =(assets - liabilities)/ETF shares outstanding

The actual performance displayed on a brokerage statement for an ETF held in your portfolio may differ slightly from the calculation you make from the NAV because the market value may be marginally different than the NAV, as mentioned above.However, these variations should only be slight and minimally impact your total performance.

What Is an ETF’s NAV?

ETFs hold a portfolio of stocks. The value of this portfolio (plus any cash holdings and less any liabilities) is the NAV. On a per-share basis, you divide this figure by the number of ETF shares outstanding.

Why Do ETF Prices Remain Close to their NAV?

Because ETFs undergo a process of creations and redemptions, institutional investors and sophisticated traders will sell (redeem) ETFs and buy the basket of underlying stocks when the ETF price rises too high above the NAV, and they will do the opposite when the market price falls well below the NAV. This mechanism of ETF arbitrage tends to keep the price close to the NAV.

What Is an ETF’s iNAV?

iNAV, as mentioned above, stands for intraday or indicative NAV. It is imputed by some brokers on behalf of their clients to estimate the real-time value of an ETF’s portfolio of holdings, rather than relying on end-of-day closing NAV.

The Bottom Line

ETFs are a way to gain broad exposure to an asset class such as stocks, bonds, or commodities. As with mutual funds, the net underlying value (NAV) of an ETF is calculated at 4 p.m. every day, but an ETF's iNAV, or intraday NAV, is calculated every 15 minutes throughout the day as well. To find the daily NAV of an ETF, subtract the liabilities from the fund's assets and divide by the number of ETF shares outstanding. Institutional investors step in to buy or sell when the ETF price diverges too much; this arbitrage tends to keep the price tightly aligned with the NAV.

How to Calculate the Value of an ETF (2024)

FAQs

How to Calculate the Value of an ETF? ›

The NAV is determined by adding up the value of all assets in the fund, including assets and cash, subtracting any liabilities, and then dividing that value by the number of outstanding shares in the ETF.

How is ETF cost calculated? ›

Locate the average value of the ETF's assets over the year (also in the prospectus). Divide the total expenses by the average assets. Multiply by 100 to convert to a percentage.

What is the valuation point of an ETF? ›

It's basically an indication of the fair value of a single share of the fund. It provides investors a reference point around which they can gauge any offers to buy or sell shares of the fund.

Where does the value of an ETF come from? ›

The NAV is determined by adding up the combined value of all the ETF's individual holdings plus its cash and is usually expressed on a per-share basis. The price of an ETF share generally stays very close to NAV but if the share price is below the NAV, then the ETF is said to be trading at a discount.

How do I track my ETF price? ›

Performance of ETFs
SchemesLatest Price% Change
SBI - ETF BSE 100262.520.00
HDFC Nifty 50 ETF254.561.34
Motilal MOSt Oswal M50 ETF240.003.14
SBI - ETF Nifty 50243.351.69
33 more rows

How do you calculate ETF value? ›

So how, then, is an ETF's daily NAV computed? This value is taken from the most recent closing prices of the holdings of the ETF (on a weighted basis) plus any cash that it holds. Then, deduct any liabilities that the ETF may have on its balance sheet and divide that amount by the number of ETF shares outstanding.

How do you calculate cost basis for an ETF? ›

Average cost method

Average cost is calculated by taking the total cost of the shares you own and dividing by the total number of shares. Be aware, if you select this method for cost basis reporting, you must use it for all shares bought before that initial stock sale.

How much is my ETF worth? ›

The value of both mutual funds and ETFs are calculated using the net asset value (NAV), which uses the end of trading day price for each underlying asset. The NAV of an ETF is equal to the value of each share measured by the value of all the fund's underlying holdings at their closing price for the day.

How do you evaluate an ETF fund? ›

The two ways to see how closely an ETF matches the index performance are 'tracking error' and 'tracking difference'. Tracking difference addresses how closely the ETF tracks the index returns, while tracking error reflects how consistent over time the tracking quality is.

How to calculate ETF total return? ›

Total Returns (Monthly)-ETFs

Morningstar calculates the market-price return by taking the change in the fund's market price, reinvesting all income and capital-gains distributions during the period, and dividing by the starting market price.

How do I cash out my ETF? ›

In order to withdraw from an exchange traded fund, you need to give your online broker or ETF platform an instruction to sell. ETFs offer guaranteed liquidity – you don't have to wait for a buyer or a seller.

How do you profit from an ETF? ›

How do ETFs make money for investors?
  1. Interest distributions if the ETF invests in bonds.
  2. Dividend. + read full definition distributions if the ETF invests in stocks that pay dividends.
  3. Capital gains distributions if the ETF sells an investment. + read full definition for more than it paid.
Sep 25, 2023

What is a good management fee for an ETF? ›

How to find the best ETF expense ratio. High fees can turn any investment into a poor one. A good rule of thumb is to not invest in any fund with an expense ratio higher than 1% since many ETFs have expense ratios that are much lower.

How does ETF charge fees? ›

Investment management fees for exchange-traded funds (ETFs) and mutual funds are deducted by the ETF or fund company and adjustments are made to the net asset value (NAV) of the fund daily. Investors don't see these fees on their statements because the fund company handles them in-house.

What is the real cost of ETFs? ›

Total estimated ETF costs during one year
Description of costs and assumptionsLong-term, buy-and-hold investor
Commissions$0
Bid/ask spreads (0.15% average per roundtrip)$15
Operating expenses (0.18% per year on $10,000 balance)$18 (ETF held every day in the year)
Changes in discounts/premiums$0
2 more rows

How do you determine fair price for an ETF? ›

Here are some steps to calculate the value of an ETF:
  1. Determine the ETF's NAV.
  2. Check the ETF's market price.
  3. Compare the ETF's market price to its NAV.
  4. Evaluate the ETF's premium or discount.
  5. Consider the ETF's cash and cash equivalents.
  6. Analyze the ETF's IIV.

How much should ETF fees be? ›

How to find the best ETF expense ratio. High fees can turn any investment into a poor one. A good rule of thumb is to not invest in any fund with an expense ratio higher than 1% since many ETFs have expense ratios that are much lower.

References

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