Exchange traded funds try to consistently reflect the net asset value of their underlying holdings, potentially leaving arbitrage opportunities for the fastidious market observer. However, most investors shouldn’t rely too heavily on trading based off the NAV.

An ETF’s NAV is the sum total of its underlying holdings divided by the number of shares outstanding. Since ETFs trade like any other stock on an exchange, the ETF’s price can fluctuate throughout the day. ETFs typically update their underlying trading value, calculating the approximate NAV every 15 seconds throughout the trading day.

Investors may have heard of these updated calculations as the intraday indicative value (IIV), indicative optimized portfolio value (IOPV) or intraday net asset value (INAV).

Typically, a third-party does all the work. They will look up all the securities in the ETF, find the last price the security was traded at, add everything up, divided by number of shares outstanding and come up with the INAV.

In domestic equity ETFs, the INAV works as intended. The INAV provides a fair value of the ETF, which basically means the fund is trading in line with its underlying assets with little or no tracking error. This also allows investors to get a better view of whether or not they are over or underpaying an ETF.