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I understand the NAV to be the sum of all assets minus the liabilities divided by the total number of shares.

Would the assets include the financial derivatives held by the ETF? And if so, how is this less than the fund's exposure?

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    $\begingroup$ Imagine an ETF that holds cash and futures. Then the NAV of the ETF is simply the value of the cash. (Of course the value fluctuates from day to day as a result of futures P&L, some days you lose cash some days you gain as a result of futures daily settlement). $\endgroup$
    – nbbo2
    Feb 21, 2023 at 11:59
  • $\begingroup$ But aren't the futures also an asset? $\endgroup$
    – Student
    Feb 21, 2023 at 12:06
  • $\begingroup$ To you maybe, but as far as accountants are concerned their value is 0. They are not assets but "contingent contracts" that will bring about gains or losses in the future. $\endgroup$
    – nbbo2
    Feb 21, 2023 at 12:37
  • $\begingroup$ This should not be closed for being a basic question $\endgroup$
    – amdopt
    Feb 24, 2023 at 14:12

2 Answers 2

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Are you familiar with how a futures trading account works? You deposit a certain amount of cash. When you "buy" a future this does not use up any cash, nor is the future shown on your statement as an "asset". However, every day your account loses or gains cash because of mark to market P&L on the futures. To have a sense of "how big" your futures position is you can compute the "notional" of the futures,for example you could say that with S&P at 4000.00 ten ES futures have a notional of 4000 x 10 x 50 = 2 Million USD worth of stocks. However it is very important to note that this is not the Market Value of the futures, it is the Notional or Exposure, a different concept.

An ETF works similarly. It contains cash and cash equivalents, which are assets and have a market value and stocks which are also assets and have a market value. There may also be liabilities (such as a margin loan used to buy stocks). Adding up the MVs of these assets and liabilities gives the Total NAV of the fund, which divided by the outstanding shares gives the NAV per Share. Note that futures do not enter into the NAV calculation.

For leveraged fund that uses derivatives, the Total NAV is not sufficient to describe the fund. We need to also compute the Equity Exposure of the fund. This is found by adding the market values of the stocks and the equity exposures of the derivatives (such as futures).

For a 3x fund the Equity Exposure of the fund will be three times the NAV.

The NAV statement for the TQQQ fund illustrates this calculation.

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I am not 100% sure, but I think taking a close look at one leverage ETF, it's NAV and holdings may help.

Let's take an example: TQQQ - UltraPro QQQ (which is a 3x leveraged NASDAQ ETF)

If I download it's NAV as of today it is: $12,266,192,450.00.

Now download the holdings (pasted below).

If I add all the numbers in lines that have a weight I get: $36,797,860,106.99 which is exactly 3x the NAV.

Not sure how to get to the NAV from here though.

(This should probably be a commnent - but it is to long for it).

enter image description here

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  • $\begingroup$ That's what I am puzzled about. If I add all the positions that have a weight assigned I get 3x NAV, $\endgroup$
    – phdstudent
    Feb 21, 2023 at 16:46
  • $\begingroup$ But then what does this imply for the market price of the ETF? I'm struggling to see why that shouldn't include the value of the futures. $\endgroup$
    – Student
    Feb 22, 2023 at 4:32

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