But double-long agriculture commodity ETNs is probably where we might want to start drawing the line.
According to XTF.com, eight ETNs were trading at premiums of 5% or more this week.
Retail investors also have the option of investing in ETFs and ETNs, based on Indian stocks.
Investors should also be aware that leveraged VIX ETNs have certain drawbacks as well.
In the case of VIX, these ETNs hold a collection of rolling VIX futures contracts.
We avoid ETNs because we are not comfortable taking on credit risk in our managed portfolios.
Almost all asset classes that are offered as ETNs can be found as ETFs.
FORBES: Don't Get Burned By ETNs If There's Another Lehman Catastrophe
Similar to ETFs, ETNs allow investors to buy and sell instruments designed to replicate certain target indices.
The problem is not on the same scale: synthetic ETFs and ETNs are a small proportion of the industry.
ETNs are relatively cheap to buy and sell and any broker can handle the trades (unlike futures and options).
ETNs are individually drafted, unregulated IOUs designed by organizations with murky financials and proven track record of unscrupulous behavior.
FORBES: Don't Get Burned By ETNs If There's Another Lehman Catastrophe
When Barclays acquired some of the trading assets from Lehman, they specifically disavowed responsibility for the ETNs.
FORBES: Don't Get Burned By ETNs If There's Another Lehman Catastrophe
Six out of the eight exchange-traded products that charge annual expenses of 2% or more are ETNs, according to XTF.com.
Still, ETNs may never eclipse ETFs in popularity, if only because most investors still want to own the underlying securities.
Like options, VIX futures are inherently leveraged and tend to better replicate the movements of spot VIX than the ETNs.
ETNs represent a general obligation of the issuer (or some other named counterparty) who promises to deliver the return of some index.
Worse still, investment banks may have an incentive to establish ETNs and synthetic ETFs as a cheap way of financing their assets.
These are not ETFs but ETNs so remember you have exposure should anything happen to UBS, the big Swiss bank backing them.
Mutual funds and ETFs have protections in place that ETNs do not.
Like all MLP exchange-traded products on the market today, MLPG is packaged as exchange-traded notes (ETNs), which are unsecured debt obligations.
While funds own stocks or other assets, ETNs are debt instruments whose returns are pegged to the return on stocks or other assets.
WSJ: BlackRock Wants Some ETFs to Be Sold Under a Different Label
But ETNs have their benefits, including tax efficiency and easy access to alternative investment strategies and the more obscure parts of the market.
ETNs typically eliminate some of the complex tax consequences of investments in MLPs, which usually produce income from energy pipelines under long-term contracts.
Investors have a variety of choices for incorporating VIX into their portfolios, and exchange traded notes (ETNs) are one of the most popular.
Both ETFs and ETNs provide good investment opportunity for outside investors.
MLPs, and their associated ETNs, look like an attractive alternative.
"When it comes to expenses, I consider all ETNs to be suspect unless you've combed through every page of the prospectus, " says Mr. Lee of Morningstar.
But ETNs, which generally are structured as borrowings by investment banks, are regulated like bonds, not like the mutual funds many investors seem to mistake them for.
ETPs consist of exchange-traded funds (ETFs) and exchange-traded notes (ETNs).
The distribution of investment management includes, but is not limited to: separately managed accounts, mutual funds, variable annuities, unit trusts, exchange-traded funds (ETFs), exchange-traded notes (ETNs) and other exchange-traded products (ETPs).
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