Net asset value (NAV)

Everything a fund holds, less what it owes, divided by the fund shares in issue. It is a calculation rather than a quote, struck at the end of a dealing day from the prices of the holdings, and no transaction happens at it. When a listed fund's traded price sits above net asset value it trades at a premium, when below, at a discount.

The liabilities side is not only borrowings. Management fees and the fund's running costs accrue daily and are deducted before the division, which is why a fund's value drifts below the value of its holdings gross of costs even on a day when nothing is bought or sold. The prospectus fixes the valuation point, the pricing sources and the treatment of holdings whose own market was shut at that moment, and those choices are what make one fund's figure comparable with another's.

A listed fund publishes a second, faster figure during the session, usually called the indicative or intraday value and recalculated about every fifteen seconds from the last prices of the basket. It is an estimate, not the struck figure. The traded price is kept near both by creation and redemption: authorised participants exchange baskets of the underlying holdings for fund shares, or the reverse, whenever the gap is wide enough to be worth the trouble, which adds or removes supply until the gap closes.

The tripwire is treating every premium or discount as a mispricing. Where a fund's holdings trade in a session that is already closed, the struck figure is hours old while the traded price is current, so the gap is mostly stale arithmetic rather than a judgment about value. Practitioners disagree about the remedy: some fund boards apply fair value adjustments to stale prices so that the figure moves with the world, others hold that an adjusted figure is itself an estimate and prefer the unadjusted one. Both produce defensible numbers, and the two are not comparable with each other.