In part 1 of this article, we saw the unprecedented dislocations in ETF discounts. In part 2, we are revisiting the basics of ETF premiums and discounts.
What Is NAV?
Net asset value is the total value of an ETF's assets less the total value of its liabilities. The composition of an ETF's assets will vary but will generally comprise stocks, bonds, and/or cash. If the fund uses physical replication to track its benchmark (that is, it owns securities, not derivatives), the assets are the component securities (or a sampling thereof) of its benchmark index, any accrued income generated through securities lending, and some cash. Liabilities for ETFs and other funds will largely consist of fees owed to the fund company. An ETF's NAV per share can then be calculated by dividing the total NAV of the fund by its number of outstanding shares.
