Share price return vs NAV return

If you hold an investment trust, you will often see two performance figures quoted side by side: the share price return and the NAV return. They measure different things, and they can tell very different stories about the same trust over the same period.

The NAV (net asset value) return measures the performance of the trust's underlying portfolio. It does not take into account any discount or premium at which the shares may have traded¹. The share price return measures the performance of the trust's shares themselves, and it is the return investors actually receive¹.

The gap between the two comes down to one thing: an investment trust's share price is set by supply and demand in the stock market, so the price paid almost invariably differs from the NAV². When the shares trade below NAV, that is a discount. When they trade above it, that is a premium³. The size of that gap, and how it moves, is what separates the two return figures.

Why an investment trust's share price and NAV differ

An investment trust is a closed-ended fund. It has a fixed number of shares, and those shares trade on the stock market like any other company's shares. The price is determined by supply and demand, not by the value of what the trust holds².

The NAV works differently. It is the value of all the trust's assets, less liabilities such as any debt⁴. If a trust has £1m worth of assets and one million shares, the NAV is 100p per share². That figure is calculated from the closing prices of the underlying securities each day⁶.

So the trust has two prices at any moment: what its assets are worth per share, and what the market will pay for a share. These are almost never identical.

This is the fundamental structural difference between investment trusts and open-ended funds. With an OEIC or unit trust, the price of each unit or share is tied to the net asset value of the fund's investments⁷. There is no separate market price to diverge. With a closed-ended fund, the value moves with demand for its shares⁸.

The result is that investment trusts are likely to be more volatile than equivalent funds, due to the combined effect of gearing and the discount². An investor in a trust carries two sources of movement: the portfolio itself, and the changing sentiment towards the trust's shares.

Discounts and premiums: how they change your return

A discount or premium is expressed as a percentage of NAV. The arithmetic is straightforward. If NAV is 100p and the share price is 90p, the trust trades at a 10% discount. At 80p, it is a 20% discount. At 110p, it is a 10% premium⁹.

More often than not, investment trust shares tend to trade at a discount⁴. That tendency is not uniform. The level of discount or premium tends to vary by sector and changes with market sentiment².

For a reader trying to understand the two return figures, the discount is the bridge between them. If the net asset value return is positive over a year but the discount widens over the same period, the share price return will be lower. If the discount narrows, the share price return will be higher. The portfolio performance is the same in both cases; what differs is how the market repriced the shares relative to the assets. A trust whose net asset value is 100p and whose share price is 90p is shown as a 10% discount; at 80p it is a 20% discount, and at 110p it is a 10% premium⁴.

There is one structural feature that matters for anyone holding a trust at a wide discount. If shareholders vote to wind up (close) the trust, the underlying assets are sold off and shareholders receive their money back at a price that closely reflects the NAV³. That is a backstop, not a guarantee, and it requires a shareholder vote.

When share price return and NAV return tell different stories

The two figures diverge most sharply when sentiment towards a trust or its sector shifts.

Consider a trust whose portfolio rises in value over a year. The NAV return is positive. But if the discount widens over the same period, the share price return can be lower, flat or negative. The portfolio did its job; the market simply decided it would pay less for exposure to it.

The reverse also happens. A trust's portfolio might fall in value while the discount narrows, cushioning or even offsetting the share price return. The share price can rise above the NAV, which is known as a premium³.

This is why the two figures are published side by side. The NAV return tells you how the manager's portfolio performed. The share price return tells you what an investor who bought and held the shares actually experienced. Over short periods, the gap between them can be large. Over long periods, the discount or premium at the start and end of the period still affects the comparison, but the portfolio performance tends to dominate.

For context on how share returns behave generally: over time, shares are likely to offer greater potential for higher returns, but with it greater changes in value¹⁰. Returns from property are generally higher than bonds but lower than shares¹⁰. These are broad asset-class characteristics, not predictions about any individual trust.

Which return you actually receive as an investor

The share price total return is the return investors actually receive¹. That is the figure that reflects what happened to your holding, including the effect of any discount or premium at which the shares traded.

The NAV total return measures the underlying portfolio and does not take into account any discount or premium at which the shares may have traded¹. It is a measure of the manager's performance, not of your experience as a shareholder.

Both figures are useful, but for different questions. If you want to know how the manager has done at picking and managing assets, the NAV return answers that. If you want to know what a shareholder in the trust would have earned over the period, the share price return answers that.

The distinction matters most when a trust has traded at a persistently wide discount or premium. A trust that has traded at a 20% discount for years will show a share price return that lags its net asset value return by roughly that margin over the period, unless the discount narrows. A trust at a premium shows the opposite effect. The level of discount or premium tends to vary by sector and changes with market sentiment¹.

How dividends are counted in total return figures

Published performance figures for investment trusts are almost always given on a total return basis. This means that any dividends received are considered to have been reinvested¹.

That convention applies to both the share price total return and the NAV total return. Without it, comparing a high-yielding trust with a low-yielding one would be misleading, because the income component would be stripped out of one and not the other.

Dividends are one of the two ways equities generate a return, the other being an increase in the share price¹¹. For income-focused trusts, the dividend component can be a substantial part of the total return.

The reinvestment convention also matters for how you read a fund factsheet. Accumulation share classes reinvest dividends within the fund, so the fund price increases compared to the income share class¹². Income share classes pay dividends out. When comparing performance figures, it helps to know which share class the figures refer to.

Where to find share price and NAV performance figures

Investment trust performance figures, including both share price and NAV total returns, are published by the Association of Investment Companies for its member trusts¹³. These are the figures most commonly quoted in factsheets and provider literature.

Fund factsheets themselves typically include investment objectives, risks, historical performance, and a breakdown of investments by sector and geographic region¹⁴. They usually list the top 10 investments along with their percentage of the fund's total holdings¹⁴.

For share prices and NAVs, trust providers publish daily figures. Investment trust share prices, NAVs and discounts are published as at each trading day³. UK OEIC prices are published separately³.

For the underlying share prices used to calculate NAV, these come from the closing prices of the securities each day⁶. If you hold shares directly, you can value stocks and shares quoted on the London Stock Exchange by finding the price of the shares in the financial pages of a newspaper, or by looking on the newspaper's website or a commercial website¹⁵.

If you hold through a platform, you can also see the value of your investments on your homepage¹⁶.

How often is an investment trust's NAV published?

Investment trusts publish a daily NAV. That is the standard for mainstream trusts, and it is what allows the discount or premium to be calculated and quoted each day.

Venture capital trusts are different. VCTs will often only value their portfolio every three or six months⁵. Their net asset value is provided by the VCT's board of directors, usually twice a year¹⁷. That means a VCT's published NAV can be based on valuations that are months old, and the discount or premium calculated from it is correspondingly less precise.

For open-ended funds, the position is different again. Unit trusts are priced once a day, based on the net asset value of their underlying portfolio assets¹⁸. There is no separate market price, so there is no discount or premium to calculate.

Investment trusts also have governance features that affect how performance is reported. They have an independent board of directors whose role it is to look after the interests of shareholders, an annual general meeting open to shareholders, and an annual report with a shorter report usually produced every six months¹⁸.

Where the two figures can mislead

The most common mistake is to read a NAV return as though it were the return you received. It is not. The share price total return is the return investors actually receive¹.

The second is to treat a discount as a buying signal. Investment trust shares tend to trade at a discount more often than not⁴, and the level of discount varies by sector and changes with market sentiment². A discount can widen. A trust that looks cheap on a discount basis can become cheaper.

The third is to compare a trust's share price return with an open-ended fund's return without adjusting for the structural difference. An open-ended fund has no discount or premium, so its published return is closer to a pure portfolio return. A trust's share price return includes the market's repricing of the trust's shares.

For anyone comparing investment trusts with other fund structures, the investment trusts page sets out how they work, and the investment trusts vs unit trusts and OEICs comparison covers the structural differences in detail. The fund charges and the ongoing charges figure (OCF) page explains how costs are disclosed, and how funds are priced and when your deal goes through covers the pricing mechanics for open-ended funds.