The Net Asset Value (NAV) of an Exchange-Traded Fund (ETF) represents one of the most fundamental concepts in ETF investing, yet it’s often misunderstood or oversimplified. While seemingly straightforward—the per-share value of an ETF’s underlying holdings—NAV serves as the cornerstone for many critical aspects of ETF operations, from pricing and trading to performance measurement and arbitrage mechanisms.
In this lesson, we’ll delve into what NAV truly represents, how it’s calculated, and why understanding the relationship between NAV and market price provides essential insights for ETF investors. We’ll examine the factors that influence NAV calculations, explore the reasons for premiums and discounts, and consider how NAV intersects with other key ETF concepts to create the efficient investment vehicles that have revolutionized portfolio management.
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