DIY Investor Magazine
|
Oct 2017
21
Hint:
justETF uses NAV to calculate performance. But the NAV price
can lag current asset values by up to three days, so we also
supplement with stock exchange prices to bridge the gap. To do
pure NAV comparisons, use end-of-month values in comparisons.
RETURN DIFFERENCES IN DISTRIBUTING ETFS
CAUSED BY THE CALCULATION METHOD
Source: justETF Database; values as of 28/08/2017, starting with the inception of the
respective ETF
Some websites don’t take distributions into account at
all. They only track the capital appreciation of an ETF
(known as the price return) and completely fail to show
the impact that income has on performance.
PRICE TIME AND SOURCE MAY DIFFER
The price of an ETF fluctuates constantly as it trades
but its performance is measured by a single price
taken at a particular time during the day. Naturally
performance changes depending on when that
snapshot is taken.
The official worth of an ETF is published once a day by
the ETF provider and is known as the NAV (Net Asset
Value). However, the closing price on a stock exchange
may be quite different.
Therefore it’s vital to know whether you are looking at
the published NAV or the stock exchange price and at
what time the price was taken.
The London Stock Exchange closes at 4:30pm (GMT)
while the New York Stock Exchange closes at 9pm
(GMT). Four and a half hours is plenty of time for an
ETF’s price to change. Even if the ETF is not traded
anymore on the LSE, underlying stocks may still be
traded at a different exchange around the globe and
impact the price of an ETF.
CURRENCY AND EXCHANGE RATES MATTER
Performance can be presented in an ETF’s trading
currency, fund currency or in the home currency of the
investor. Of course, UK investors care about the return
in pounds but websites that focus on NAV will often
report in the fund currency.
justETF always displays performance in the investor’s
home currency and it’s also possible to switch between
GBP, USD, CHF, or EUR to see how currency rates
affect performance.
Even when performance is converted into your home
currency, metrics can deviate depending on which
currency exchange rate is used. For example, justETF
and many other websites use the official ECB exchange
rate set at 1.15pm (GMT) / 2.15pm (CET). However,
the Reuters’ 4pm CET rate is also widely used. And
because different exchange rates set at different times
result in different prices, you end up with an apples to
oranges comparison.
TIME PERIOD LENGTHS AND DEFINITIONS ARE
INCONSISTENT
You might think we can all agree on what a year is but
creative differences exist even here.
Many websites offer to display the last calendar year or
rolling periods of three and five years but performance
comparisons only work if the start and end dates are
consistent. The starting date of a year is particularly
troublesome as some define it as the last banking day
of the previous year while others plump for the first
banking day of the year. In the latter case, the value of
the first day is over-emphasised as the NAV is usually
calculated at the end of the day.
To remove any doubt, look for a website that clearly
displays the dates covered by the performance period
you’re interested in.
Hint:
You will always find the precise start and end date displayed above
all justETF charts - on the right-hand side. You can also check the
NAV on any given date by hovering your mouse above the ETF’s
performance line..
