Fund Foundations · Closed End Funds

Net asset value measures the common shareholders’ interest in the portfolio. Market price measures what buyers and sellers currently agree to exchange for one share.

Calculate the value belonging to common shareholders

Common NAV per share starts with the value of portfolio assets, subtracts liabilities and any senior claims as applicable, and divides the remainder by common shares outstanding. Use the fund’s published definition. A figure described as total assets may include assets financed by leverage and is not interchangeable with common net assets.

Market price answers a different question

The exchange price reflects supply and demand for the shares. Investors may value income stability, dislike expenses, question asset valuations or expect a corporate action. These judgments can put the price above or below NAV. A published NAV is not an offer to redeem every listed share at that value.

Align the timestamps

A quote at noon and yesterday’s closing NAV are not simultaneous observations. International holdings may have closed hours earlier. Some investments use estimates rather than frequently observed transaction prices. Before calculating a discount, record the date, currency and valuation basis for both numbers. Apparent precision can hide stale inputs.

Work through an example

Suppose common net assets are $240 million and 20 million shares are outstanding. NAV is $12. A market price of $10.80 represents a 10% discount. If the assets later lose value and NAV becomes $10, the old $12 NAV no longer describes today’s portfolio. Buying below a historical NAV does not lock in that difference.

A distribution also affects the comparison. All else equal, a $0.20 distribution reduces NAV by $0.20 when it becomes payable from fund assets. The investor receives cash, so evaluating only the NAV decline would omit part of the investment result.

Try it yourself

NAV is $15 and the exchange price is $16.50 at the same close. How much does the market price exceed NAV?

Show the worked answer

The price exceeds NAV by $1.50, or 10% of $15. That is a 10% premium. It is not an additional asset inside the fund and may disappear.

Further reading

Educational material, not a recommendation to buy or sell a fund. Numerical examples are hypothetical. Fund terms, investor eligibility and tax treatment vary by product, account and jurisdiction.

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