If you’ve been paying attention to bond funds as of late you probably have noticed a discrepancy between the prices/performance of bond ETFs and bond mutual funds. Here’s a great conversation on Twitter–click on the image to read it:
Is there a NAV break in TLT?
— Adam Butler (@GestaltU) March 18, 2020
As you read through that thread don’t feel bad if you had no idea what they were getting all excited about; it’s something I’m willing to bet many financial advisors don’t understand either. The simple explanation is we are seeing bond mutual funds and ETFs NAVs at significant differences, when in theory they should not because they are holding the same/similar bonds and are pegged to the same benchmark. I asked my friend Ryan Kirlin to give us a breakdown and a deeper explanation of what’s going on right now in the bond markets; this isn’t Ryan’s first visit to All About Your Benjamins and he is the first guest on a new series I’m calling, “What’s That Mean?’
Let me give you a couple of definitions before I turn you loose on the video:
NAV: Net Asset Value. This is simply the per-share value of a fund–applies to both mutual funds and ETFs. To calculate the NAV of a fund, you take the value of all of the securities and cash minus any liabilities and divide that number by the total number of outstanding shares. A fund’s NAV is calculated at the close of the market each day–it’s the price you’re used to seeing when you check on your mutual funds.
Market Price: The market price is different than the NAV and applies to securities like ETFs, stocks, and bonds. The market price is the value of the ETF (for this conversation) at any given time during trading hours. Unlike mutual funds, which trade at NAV–meaning they your mutual fund investments do not get priced until the end of the day when NAV is calculated, ETFs trade throughout the day at the price the trade is executed.
Ok, I know that’s pretty nerdy, but it’s important to know the difference because we talk about each in this video. Ryan does a great job explaining why there is a difference between bond mutual funds and ETFs and shed’s a little light on why that may be problematic–he’s mentioned this concern before on previous appearances, which you can view by clicking the links below.
You should already know this, but this conversation is purely for informational purposes and is not meant to be a recommendation–talk to your financial advisor about your situation and portfolio.
AAYB Talkin Shop: Ryan Kirlin and ETFs (12/20/2018)
Disclaimer: Nothing on this blog should be considered advice, or recommendations. If you have questions pertaining to your individual situation you should consult your financial advisor. For all of the disclaimers, please see my disclaimers page.
1 thought on “Mutual Fund vs. ETF Bond Fund NAV–What Is Going On?!?”
Comments are closed.