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Net asset value (NAV) for investment trusts

By This Is Money
Updated: 04:31 EDT, 1 June 2011

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The Daily Mail City team explain Net Asset Value and how it is used to measure the performance and future prospects of property and investment firms.

New class stereotype?

No, it's nothing to do with 'chavs'. It stands for net asset value.

I'm lost...

The NAV of a company is how much money would be left over if you wound up a company, sold off all its assets and re-paid debts. It's most commonly used to gauge the performance of property and investment trusts.

Market cap?

They are not the same thing. Market value is determined by share price, which factors in expectations over future earnings growth. Often stock in a fast-growing firm will be priced far above its NAV per share, while the opposite is true for a company perceived to be in decline.

So what?

Shares in funds group Alliance Trust have persistently traded at a sharp discount to the underlying value of the firm's portfolio of investments. Over recent months it has been under siege from hedge fund Laxey Partners, which has been pressing the Alliance Trust to establish a formal mechanism to close the NAV discount.

And?

Alliance Trust recently relented to the pressure, promising to pursue an 'ongoing, flexible' policy to stock re-purchases. In a trading update, Alliance said the discount had narrowed from 17.1% to 15.3% after buying back £19.4m worth of shares.

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