Offbeat Offerings: Exchange-Traded Notes
by Cara Scatizzi
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 implicationsand they carry a lot of risk.
First and foremost, ETNs dont 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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