Offbeat Offerings: Exchange-Traded Notes

    by Cara Scatizzi

    Offbeat Offerings: Exchange Traded Notes Splash image

    Exchange-traded notes (ETN) are newcomers to the investment world. Although the name and acronym bears a resemblance to exchange-traded funds (ETFs), and they trade on an exchange (as do ETFs), they are quite a different investment vehicle. They are much more complicated to understand, they have different tax implications—and they carry a lot of risk.

    First and foremost, ETNs don’t actually own any assets. Instead, they are “promises” made by the issuer to pay, at a specified maturity date, an amount that mimics the returns of specific market indexes. For that reason, ETNs have the credit risk of the issuing bank, along with the market risk of the asset class to which they are tied.

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    → Cara Scatizzi