NAV Return

What is NAV Return?

NAV return, or net asset value return, is a performance measurement for an entity’s assets minus liabilities. NAV return is typically used to measure the performance of mutual funds, open-end funds, or exchange traded funds (ETFs) because shares of the funds are typically purchased at their NAV.

Net asset value return can also be used to measure the value of a company – it is comparable to using the book or equity value. Furthermore, NAV return is useful in finding intrinsic value, as it takes the change in net assets over time.

How to Calculate NAV Return

NAV return can be calculated using two methods:

1. Find the return of total NAV.

2. Find the return of NAV per share.

NAV Return Formula using Total NAV

Where:

• NAV₁ = NAV at time 1
• NAV₂ = NAV at time 2

NAV Return Formula using NAV Per Share

Where:

• NAV₁/Share = NAV per share at time 1
• NAV₂/Share = NAV per share at time 2

Example of NAV Return

A mutual fund’s been open for exactly one year and would like to calculate the net asset value return per share. The following information is given:

• Value of securities in the portfolio at time 1: $50 million (based on end-of-day closing prices)
• Value of securities in the portfolio at time 2: $75 million (based on end-of-day closing prices)
• Cash and cash equivalents at time 1: $15 million
• Cash and cash equivalents at time 2: $10 million
• Short-term liabilities at time 1: $2 million
• Short-term liabilities at time 2: $4 million
• Long-term liabilities at time 1: $10 million
• Long-term liabilities at time 2: $15 million
• 50 million shares outstanding at time 1
• 60 million shares outstanding at time 2

Application of NAV Return

NAV return is typically calculated daily for mutual funds, open-end funds, and ETFs based on the daily NAV of the fund, which is reported at the end of each trading day. The NAV value changes daily, as assets are based on their market values.

In addition, the net asset value return is a transparent performance measure, as it only includes the actual assets in the fund at the end of each day. Unlike other performance measures, it does not include capital gains distributions, dividends paid, or interest paid to shareholders unless they were reinvested into the fund. The value is typically calculated by the fund’s accountants.

Net Asset Value Return vs. Total Return

The total return of a fund includes distribution payouts, such as dividends; thus, it includes distribution that’s not been reinvested into the fund, whereas net asset value return only includes distributions that are reinvested. Additionally, the total return of a fund includes the capital gains and losses from the securities held in the fund; also, it includes any expenses charged by the fund.

The total return is argued to be the better performance measurement of a fund, as it more accurately reflects what a shareholder would receive. An investor must look at the total return of a fund as a whole, for example, a dividend-seeking investor may only focus on the fund’s dividend yield, yet there may be high-performing funds that don’t give out dividends.

Additionally, since the net asset value return does not include dividends and other types of distributions, it may not accurately depict the return a shareholder would receive in a fund with a high dividend yield. Therefore, when analyzing a fund’s performance, it is important to not look at only one return or one aspect of a return in isolation; analyzing a fund’s performance is best done by using multiple returns and ratios.

Additional Resources

CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:

• Net Asset Value Per Share (NAVPS)
• Open-end vs Closed-end Mutual Funds
• Intrinsic Value
• Rate of Return
• See all wealth management resources