An ETF is an exchange traded fund, there is plenty of information and articles about this type of investment. Besides that, there’s a variation of ETFs known as ETNs, exchange traded notes. If you are interested in ETFs, then you should know about ETNs as well. Here’s further information about the differences between ETN vs ETF.
ETNs are structured investment products that are issued by a major bank or provider as senior debt notes. When an investor purchases an ETN, he or she is purchasing a debt product similar to a bond. The terms of the debt contract are determined by the structure of the ETN. Because ETNs are backed by a bank with a high credit rating, they are pretty secure products. However the notes are not without credit risk, just a lower level. As of today, there are four major types of ETNs. According to Barclays, the premier ETN provider, there are commodity, currency, emerging market and strategy ETNs. Commodity ETNs include categories such as energy, oil, and metals. Currency ETNs include the euro, the British pound and the Japanese yen. One thing to keep in mind that while ETNs may be attractive, they do still have their risks. As do all investments, so make sure you research each note thoroughly before making any trades. Watch how they react to different market conditions. Understand what is in each note, especially the leveraged and inverse ETNs, which typically contain derivatives.
An ETF, or exchange traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. An ETF is a type of fund which owns the underlying assets (shares of stock, bonds, oil futures, gold bars, foreign currency, etc.) and divides ownership of those assets into shares. Shareholders do not directly own or have any direct claim to the underlying investments in the fund; rather they indirectly own these assets. By owning an ETF, investors get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share (there are no minimum deposit requirements). Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, you have to pay the same commission to your broker that you’d pay on any regular order. There exists potential for favorable taxation on cash flows generated by the ETF, since capital gains from sales inside the fund are not passed through to shareholders as they commonly are with mutual funds.
|- ETN is something that many retail investors may not know about||- ETF are the hottest thing since the mutual fund|
|- ETN is more like a bond. It's an unsecured debt note issued by an institution||- When you invest in an ETF, you are investing into a fund that holds the asset it tracks|
|- ETF achieve varying levels of success when tracking their respective index||- ETN investing is the lack of tracking errors|
In the end, if you follow the old rule that says you should invest only into what you understand, ETFs are a better choice. Part-time investors have an easier time understanding products with stock-like characteristics. Since an ETN has bond-like characteristics that make it more complicated.