Let’s analyze the $16 billion market in U.S. listed ETNs to see the similarities.
ETNs vs. ETFs
While ETNs and exchange-traded funds (ETFs) are sometimes grouped together, or worse, confused as the same thing, they are not.
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Unlike traditional ETFs, exchange-traded notes are debt obligations backed by the financial or banking institution that issues them. ETNs pay a return linked to the performance of a single security or index. Who pays the return? The financial issuer backing the note.
ETNs can track a variety of assets from commodities (DJP), to the VIX Index (VXX) and Indian stocks (INP). ETNs are also used as day trading instruments for those that want leveraged long exposure (DGP) or leveraged short (DZZ) to gold or other assets.
Investors that choose to keep their ETN to maturity receive a cash payment calculated from the beginning trade date to the ending period, or maturity date. The annual fees deducted reduce the value of the payment.
Maturity periods can vary and may be as long as 30 years. ETN investors who don’t want to hold their note to maturity can sell it prior to maturity on the exchange where they trade.
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