NAV vs. Market Price Total Returns

[DawgMan]

Let me start by saying perhaps I am dense, but I feel like I have never gotten a real explanation of this so I am hoping there is a simple layman's answer one of you intelligent peeps can provide?

I get the basic definitions as it relates to NAV with ETFs and mutual funds, but notice from time to time some very large discrepancies. A couple examples, when I look up certain funds/ETFs on Schwab and review the Total Returns, here is what I see...

Symbol 1 Yr 3 Yr
SCHZ Market Price +11.33 +3.17
SCHZ NAV +11.42 +3.20 Only a slight difference

NMZ Market Price +27.51% +8.25%
NMZ NAV +15.80% +6.73% Pretty dramatic difference

Is Total Return truly a total return including dividends, interest, capital gains? Which return should I really be looking at when evaluating an ETF/fund's past performance?

[pb4uski]

In each case, total return is a function of beginning value, cash flows (dividends) and ending value.... in the case of the NAV total return the beginning and ending values are NAV values and in the case of market price returns the beginning and ending values are based on market values. To the extent that the market premium or discount changes during the period then that change in premium or discount will impact the market value total return.

I think the market value total return is more relevant because for those closed end funds investors can only invest at market value and not at NAV... since investors can't invest or divest at NAV the NAV total return is less relevant in my view.

[DawgMan]

Quote:

Originally Posted by pb4uski In each case, total return is a function of beginning value, cash flows (dividends) and ending value.... in the case of the NAV total return the beginning and ending values are NAV values and in the case of market price returns the beginning and ending values are based on market values. To the extent that the market premium or discount changes during the period then that change in premium or discount will impact the market value total return. I think the market value total return is more relevant because for those closed end funds investors can only invest at market value and not at NAV... since investors can't invest or divest at NAV the NAV total return is less relevant in my view.

Thanks!

Not sure why this always stumps me, especially when there is a big gap, but just wanted to make sure I wasn't missing something.

[jim584672]

NAZ is a closed end fund, which is not an ETF. Closed end funds have no ability to arbitrage NAV to market price so large pricing differences can occur. The only way the NAV can be brought into line is if the fund liquidates.

ETFs have the ability to pull or push creation units (large blocks of shares) into or out of the fund. This keeps the market price to NAV fairly tight.