ETFs and ETNs: Knowing What You Own
by Neil Leeson
One of Warren Buffett’s famous quotes that many investors and portfolio managers follow and recite to their followers, “never invest in a business you can’t understand,” can be applied to investing in exchange-traded products.
The nomenclature ETP is rarely used in the popular press or by investors; even Ned Davis Research has an ETF Service. All ETPs are not created equal. There are exchange-traded funds (, exchange-traded notes and unit investment trusts . Many will add open- and closed-end mutual funds to the ETP basket as well. To confuse matters more, many of these vehicles have different structures: grantor trusts, limited partnerships and open-ended 1940 Investment Company Act funds. These are all important considerations when determining the tax implications, tracking error, asset allocation and distribution differences in owning a fund.
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