Comparison of ETF Net Asset Value and ETF Market Price

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ETF NAV vs. ETF Market Price: An Overview

Unlike mutual funds, which can value their stocks on a weekly, quarterly, or even annual basis, exchange-traded funds (ETFs) will value daily. So how are they valued and what is the difference between the market price and the net asset value (NAV)?

Key points to remember

  • The ETF market price is the price at which ETF shares can be bought or sold on the exchanges during trading hours.
  • The net asset value (NAV) of an ETF represents the value of each share’s share of the underlying assets and cash in the fund at the end of the trading day.
  • Net asset value is determined by adding the value of all of the fund’s assets, including assets and cash, subtracting any liabilities, and then dividing that value by the number of shares outstanding in the ETF.

ETF market price

The market price of an exchange-traded fund is the price at which shares of the ETF can be bought or sold on the exchanges during trading hours. Since ETFs trade like shares of publicly traded stocks, the market price will fluctuate throughout the day as buyers and sellers interact and trade. If there are more buyers than sellers, the price will increase in the market and the price will drop if more sellers appear.

ETF NAV

The net asset value (NAV) of an ETF represents the value of each share’s share of the underlying assets and cash in the fund at the end of the trading day. ETFs calculate NAV at 4:00 p.m. Eastern Time after market close.

Net asset value is determined by adding the value of all of the fund’s assets, including assets and cash, subtracting any liabilities, and then dividing that value by the number of shares outstanding in the ETF.

Net asset value is used to compare the performance of different funds, as well as for accounting purposes. The ETF also publishes its current daily holdings, cash amount, shares outstanding and accrued dividends, if any. For investors, ETFs have the advantage of being more transparent. Mutual funds and closed-end funds do not have to disclose their daily holdings. In fact, mutual funds typically only disclose their holdings on a quarterly basis.

Price differences from net asset value

There may be differences between the closing market price for the ETF and the NAV. However, any deviation should be relatively minor. This is due to the redemption mechanism used by ETFs. Redemption mechanisms keep the market value and net asset value of an ETF reasonably close. The ETF uses an Authorized Participant (AP) to form creative units. For an ETF plotting the S&P 500, an AP would constitute a unit of creation of shares in all the companies of the S&P 500 in a weighting equal to that of the underlying index. The PA would then transfer the creative unit to the ETF provider on an equal net asset value basis. In return, the AP would receive a block of shares of similar value in the ETF. The PA can then sell these shares on the open market. Creation units are generally between 25,000 and 600,000 ETF shares.

The buyback mechanism keeps the market and the net asset value online. The AP can easily arbitrate any spread between the market value and the NAV during the trading day. The market value of ETF shares naturally fluctuates during the trading day. If the market value becomes too high relative to the NAV, the AP can step in and buy the underlying components of the ETF while simultaneously selling shares of the ETF.

Alternatively, the AP can buy the shares of the ETF and sell the underlying components if the market value of the ETF falls too far below the NAV. These opportunities can provide a quick and relatively risk-free profit for the AP while keeping stocks close to each other. There can be multiple APs for an ETF, ensuring that more than one party can arbitrate to eliminate any price gap.


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