The Importance of the NAV


By now, you would have digested the results of the election just past and hopefully you are now focusing on organizing your future. To assist in your investment future, let us look at the Net Asset Value affectionately known as the NAV, what it is, and its relevance. The NAV is used to value Mutual Funds, Unit Trusts, Exchange Traded Funds, and other companies which are essentially listed Funds e.g. Mayberry Jamaican Equities or Sagicor Select Funds.

The NAV formula is the total assets of the fund minus the total expenses and liabilities. Once the total NAV has been determined, the next step is to find the NAV per share or unit. This is calculated by dividing the total NAV by the number of units or shares. If you are buying a Mutual Fund, you will hear this term repeated ad nauseum. Why? Unlike a stock where the price is determined by supply and demand, a NAV calculates exactly what your units are worth at a specific point in time. A NAV is a clear and objective metric of intrinsic value.

The value of the NAV is an indication of what you will receive if you exit your investment in a mutual fund. Investors are extremely interested in the movement of the NAV because it represents the underlying value of their investment. For this reason, if the NAV keeps going up in value after you have purchased your Fund, then you are making gains. Likewise, if the NAV is decreasing in value, then you know that you are making a loss.

How frequently are they calculated?

NAVs are calculated at different frequencies but consistent intervals. A mutual fund may be valued daily, weekly, monthly, or even quarterly. Before you purchase a mutual fund, you should ask how frequently it is valued. You would trade the Mutual Fund at the most recent NAV.

Where else are NAVs used?

In the last few years, it has become popular to publish a NAV on the Jamaica Stock Exchange website for a few companies. These companies include Mayberry Jamaican Equities, Sagicor Select Funds, Eppley Caribbean Property Fund and QWI Investments. These are all listed equities which will trade at a price determined by the market, however, what these companies have in common is that they are essentially an investment portfolio that derives its value from the securities it is invested in – not dissimilar to a mutual fund or unit trust. Please note that the NAV is likely to be different from the stock price that may be quoted. This implies that sometimes it will be trading at a discount (price is less than the NAV) and other times at a premium (price is higher than the NAV).

There are other funds, such as Sterling Investments Limited, which are listed on the Jamaica Stock Exchange, that do not publish a NAV. However, although it is not published, the book value is another proxy for the NAV and this may be determined by examining the financials published on a quarterly basis. Now that you know all about the NAV, you can go and invest in confidence! 

Yanique Leiba-Ebanks is the AVP, Pensions & Portfolio Investments at Sterling Asset Management. Sterling provides financial advice and instruments in U.S. dollars and other hard currencies to the corporate, individual, and institutional investor. Visit our website at Feedback: if you wish to have Sterling address your investment questions in upcoming articles, e-mail us at [email protected]

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