Here’s an example of how the NAV of an ETF can be calculated using a hypothetical portfolio of five stocks:
Let’s say the ETF holds the following stocks:
- Company A: 1,000 shares, trading at $50 per share
- Company B: 2,500 shares, trading at $75 per share
- Company C: 1,500 shares, trading at $25 per share
- Company D: 3,000 shares, trading at $30 per share
- Company E: 2,000 shares, trading at $60 per share
To calculate the NAV of the ETF, we first need to determine the total value of the portfolio. This is calculated by multiplying the number of shares of each stock by its current market price, and then summing the results:
Total portfolio value = (1,000 x $50) + (2,500 x $75) + (1,500 x $25) + (3,000 x $30) + (2,000 x $60) = $507,500
Next, we divide the total portfolio value by the number of outstanding shares of the ETF to get the NAV:
NAV = $507,500 / 10,000 shares = $50.75 per share
Scenario 1: Stocks go up in price
Let’s say that the next day, the prices of all five stocks in the portfolio go up by 10%. This means that the new market values of the stocks would be:
- Company A: $55 per share
- Company B: $82.50 per share
- Company C: $27.50 per share
- Company D: $33 per share
- Company E: $66 per share
To calculate the new total portfolio value, we simply multiply the new market values by the number of shares held for each stock:
New portfolio value = (1,000 x $55) + (2,500 x $82.50) + (1,500 x $27.50) + (3,000 x $33) + (2,000 x $66) = $642,500
Dividing the new portfolio value by the number of outstanding shares gives us the new NAV:
New NAV = $642,500 / 10,000 shares = $64.25 per share
Scenario 2: Stocks go down in price
Now let’s say that instead of going up, the prices of all five stocks go down by 10%. This means that the new market values of the stocks would be:
- Company A: $45 per share
- Company B: $67.50 per share
- Company C: $22.50 per share
- Company D: $27 per share
- Company E: $54 per share
To calculate the new total portfolio value, we again multiply the new market values by the number of shares held for each stock:
New portfolio value = (1,000 x $45) + (2,500 x $67.50) + (1,500 x $22.50) + (3,000 x $27) + (2,000 x $54) = $372,500
Dividing the new portfolio value by the number of outstanding shares gives us the new NAV:
New NAV = $372,500 / 10,000 shares = $37.25 per share
So as you can see, the NAV of an ETF is directly affected by the prices of the underlying stocks in its portfolio. When the stocks go up in price, the NAV of the ETF also goes up, and when the stocks go down in price, the NAV of the ETF goes down.
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This page was last updated on March 31, 2023.
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