Perhaps it’s fitting, but the world of exchange traded funds (ETFs) is littered with acronyms, one of which is indicative optimized portfolio value (IOPV).
Also referred to as intra-day value, IOPV is a real-time estimate of an ETF’s fair value based on prices of the fund’s underlying components. Updated continuously throughout the trading day, IOPV isn’t a price advisors and money managers can transact, but it does provide a template for what prices a fund should be bought and sold at.
It’s an important concept and one ripe for a refresh, which WisdomTree is doing with its eNAV (estimated NAV) tool.
“With the passing of the ETF Rule, issuers are no longer required to publish IOPV (indicative optimized portfolio value). We feel IOPV is an antiquated metric, and we are collaborating with Virtu ITG Solutions Network LLC (Virtu), a leading ETF market maker, to disseminate their eNAV product,” said WisdomTree Director of Capital Markets Michael Barrer in a recent note.
Evaluating the eNAV Tool
Like IOPV, eNAV provides an estimate of the value of an ETF’s underlying basket, but there are important differences between the two gauges.
“Unlike IOPV, eNAV seeks to provide a real-time estimation of the value of the international equity and most fixed income ETFs that may have more dated underlying pricing,” notes Barrer.
eNAV is for informational purposes only and should not be used as a replacement for net asset value (NAV).
As was reported here, “NAV may not be a snapshot of precisely what is going on in a fund, but rather a best guess of what a portfolio is worth. For ETFs, which trade throughout the day like common stocks, investors will require a different set of indicative values to help reflect the shifting ETF prices throughout the day. In an attempt to guide trading on ETFs, the indicative NAV or iNAV provides a more real-time view of value throughout the trading day. The iNAV is typically calculated every 15 seconds during normal hours.”
NAV is important, but it’s not perfect, indicating there’s room for eNAV to act as real time complement. Plus, the WisdomTree tool has other benefits.
“eNAV is not the same as current fund price or a fund’s bid/ask spread. eNAV is providing a real-time fair value of the underlying basket, while the fund pricing is fair value of the underlying basket PLUS costs. Those costs can include local trading costs and taxes, creation/redemption fees and commissions. Even though the tool is seeking to provide a fair value of the underlying securities, the funds are likely to price at a premium or discount to the published eNAV because of these associated costs,” adds Barrer.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.