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This BlackRock page says that a bond ETF's NAV will fall by an amount equal to the dividend distribution when a dividend is paid out.

I assume that means that the bond ETF's NAV rises as interest is accrued daily (the BlackRock page also says that interest accrues daily).

How then do we incorporate this accrual when we calculate a NAV for the ETF? As in how does that affect the ETF price in the month before the dividend is paid and how do investors make assumptions about this? Does the ETF price already incorporate a "dirty price" that includes interest accrual?

Sources/useful resources would be extra appreciated!

  • Can you provide a link to the page? – Nosrac Sep 14 '17 at 13:44
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I assume that means that the bond ETF's NAV rises as interest is accrued daily

The accrued interest is just one factor in the price of the underlying bonds. Credit rating changes, interest rate changes, and supply and demand also impact the price of the underlying bonds. But yes, it would include accrued interest (since when you sell a bond you also get the accrued interest to that point)

How then do we incorporate this accrual when we calculate a NAV for the ETF?

You'd have to know the interest rate of every bond in the portfolio to calculate the daily accrued interest, but again it's only one factor.

Does the ETF price already incorporate a "dirty price" that includes interest accrual?

Among other things, yes.

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