The fund calculates its net asset value every day and publishes it publicly. This "value", also called net asset value, is one of the most important information that investors need to know before investing in ETFs and mutual funds. The net asset value of a fund is equal to the sum of all its assets (such as the value of cash, stocks, bonds, financial derivatives and other securities) minus all its liabilities, and then divided by the total number of all fund shares. The net asset value basically represents the fair value of the fund, which provides an important and useful measure for investors to judge whether the price of buying and selling fund shares is reasonable.
Due to the subscription/redemption mechanism of ETFs, the transaction price of most ETFs is very close to their net asset value. However, if the trading time of ETF constituent stocks is inconsistent with the trading time of ETF itself, the trading price of ETF will be different from its net asset value.
Calculation method of fund net asset value
In order to calculate the daily net asset value, the foundation chooses a time point every day to evaluate its assets. For traditional equity funds, once the stock market is closed, you can start to calculate the net asset value.
Take the fund tracking the US stock market as an example, its net asset value can be quickly calculated after 4 pm EST. At this point in time, the closing price of each stock of the fund will be recorded and used as the current price. Adding these prices together, we can get the value of the fund's entire portfolio.
Disadvantages of net asset value
Take an ETF traded in new york Stock Exchange as an example. When it tracks the FTSE 100 index, the constituent stocks in the index are traded on the London Stock Exchange. The closing time of the London Stock Exchange is 1 1 a.m. EDT. However, the ETF will still be traded on the new york Stock Exchange within five hours after the London Stock Exchange closes.
As the London Stock Exchange has been closed, the net asset value of ETF will remain unchanged for an additional five hours. In this case, if the price of ETF changes, but its net asset value remains unchanged, then there will be a price difference between the transaction price of ETF and its net asset value.