What is iNAV?

A key term to understand is Indicative Net Asset Value (or iNAV).

The iNAV is a measure of the intraday net asset value (NAV) of an ETF which gives an updated measure of the value of the investment based on its assets less its liabilities. An investment's NAV is usually calculated at the end of the trading day, but the indicative NAV measure gives a more real-time view of this value. It is also referred to as "indicative value".

When shares are in short supply in the secondary market, ETFs may trade at a premium to the iNAV. The result could be that an investor may buy shares at a price that is inflated to the total market value of the underlying holdings of the fund. Conversely, when there is a surplus of shares in the marketplace, ETFs may trade at a discount, allowing investors to buy shares at a price that is below the total market value of the underlying holdings of the fund.

This situation is typically resolved relatively quickly through the creation and redemption process. As new shares are introduced to or removed from the market, supply and demand come back into relative balance and the prices ordinarily return to closer alignment with the iNAV.