How to Calculate the Value of an ETF

ETFs, like mutual funds, are a good way to get exposure to many individual stocks without taking positions in any one of them on an individual basis.  But unlike mutual funds, ETFs trade throughout the day, just like the underlying holdings. So while making an investment 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.  

Net Asset Value

Both mutual funds and ETFs calculate NAV, or net asset value, at 4pm EST.  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 net asset value (iNAV) if available. 

Calculation

Let’s use an example of an investment in EFT A.  The NAV of ETF A is $100 and you buy 50 shares for a total cost of $5000 ($100*50).  Three months later, the NAV is $115.  Your 50 shares are now worth $5750 ($115*50) for a profit of $750 ($5750-$5000).  Your holding period return is

($5750-5000)/$5000=15%

The Bottom Line

The performance displayed on a brokerage statement for an ETF held in your portfolio may differ slightly from the calculation you make from NAV because the market value may be marginally different than the NAV.  However, these variations should only be slight and minimally impact your total performance.  One of the benefits of investing in an ETF is that it is 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.