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Say, for example, I'm looking at the Vanguard Information Technology ETF (VGT)

If I have the current market price for each of its holdings, and related information

+--------+--------+--------------+--------+
| Symbol | Price  | Position     | Weight |
+--------+--------+--------------+--------+
| ACN    | 119.60 | 1,220,132.04 | 1.71   |
| ACIW   |  21.34 |   231,143.64 | 0.06   |
| ATVI   |  37.76 |   998,647.00 | 0.44   |
| ACTA   |   9.95 |    72,952.03 | 0.01   |
| ACXM   |  21.94 |   152,341.53 | 0.04   |
| ADBE   |  99.12 |   973,663.76 | 1.13   |
| ...    |    ... |          ... |  ...   |
| ZEN    |  26.37 |    95,518.00 | 0.03   |
| ZG     |  30.78 |    99,210.18 | 0.04   |
| Z      |  30.33 |   197,191.22 | 0.07   |
| ZNGA   |   2.64 | 1,559,901.29 | 0.05   |
+--------+--------+--------------+--------+

Total market value: 8,536,310,523

How do I go from all the constituents, their position and price etc, and come up with the fair value for the ETF?

As an example, the ETF was trading at 110.31 at the time I got the above prices.

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    $\begingroup$ You would need to know the Shares Outstanding for the ETF, which in the case of VGT is approx 78.0 million. Then you do $8,536,310,523/78E6$ and you get 109.44. But you need to include Net Cash in the Total Market value, I am not sure if you did that or not. $\endgroup$ – noob2 Jun 7 '16 at 15:42
  • $\begingroup$ @noob2 thanks! I haven't included cash there - but if there is a cash component you just add it to the total market value of the holdings right? $\endgroup$ – Steve Lorimer Jun 7 '16 at 20:12
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    $\begingroup$ Right, just as an another asset. $\endgroup$ – MattR Jun 8 '16 at 20:25
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I believe the most precise method is to look at the Creation Units. See the Portfolio Composition File here: https://advisors.vanguard.com/VGApp/iip/site/advisor/investments/portfoliodetails?fundId=0958

This gives you the shares of each stock required to make one Creation Unit = 25,000 shares of the ETF (see prospectus). But I'd also use the NAV method given in the other answers as a "sanity check."

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  • $\begingroup$ Please could you give an example of how to use CU=25000 to get to the price of the ETF? $\endgroup$ – Steve Lorimer Jun 7 '16 at 20:11
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    $\begingroup$ Look at the link given, under the Portfolio Composition File tab. It gives you exactly the number of shares of each stock needed to make up 25000 shs of the ETF. This is the most correct method to do it. And its updated daily. All you need to do is to supply the per share prices of the stocks using any live pricing service. Then you do $\frac{\sum p_i Q_i}{25000}$ $\endgroup$ – Alex C Jun 7 '16 at 23:18
  • $\begingroup$ @AlexC The list of stocks in the PCF tab is different to those listed in the Holdings tab. The PCF shows 383 stocks, whereas the Holdings tab shows 379. How does one account for this discrepancy? $\endgroup$ – Steve Lorimer Jun 8 '16 at 13:37
  • $\begingroup$ @SteveLorimer - Right, everything has to be double checked. For all we know, the PCF file might be out of date due to some corporate actions. $\endgroup$ – John M Jun 9 '16 at 4:16
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The fair price can be calculated by [Net Assets / Shares Outstanding].

In reality the ETF should trade at a slight premium to this calculation due to the convenience of having many assets bundled in one, thus reducing your brokerage expenses in the form of transaction fees to construct a similar portfolio.

From this link: (https://advisors.vanguard.com/VGApp/iip/site/advisor/investments/productoverview?fundId=0958).... we can see there are approximately ~77,930,743 outstanding shares of VGT on net assets of ~$8.2B.

8,200,000,000 / 77,930,743 = $105.22

right now VGT is trading at $110.40, so about a 4.92% premium on the "fair value" of 105.22

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  • $\begingroup$ Is it possible to calculate what this premium is? ie: what the convenience fee is? $\endgroup$ – Steve Lorimer Jun 7 '16 at 20:13

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