ETNs versus ETFs

They are not the same animal. ETFs are backed by underlying portfolios made up of the securities that make up whatever Index the ETF is based on. When shares are bought, the Market Makers deliver to the Issuer the required portfolio of stocks, bonds or commodity futures. When investors sell shares, the Market Makers turn in those shares and the ETF portfolio delivers out the underlying securities. 

With ETNs, the fund is guaranteed either by the Issuer of by a third party-generally a bank. When investors buy shares from Market Makers, the Market Makers generally send cash to the Issuer in return for shares. The Issuer then hedges the risk in many different ways but there is not a portfolio of securities that is owned by the shareholders. The ultimate guarantee to the shareholders is the viability of the guarantor-the shareholder has no claim on the underlying portfolio.


I don’t believe that ETFs and ETNs should be lumped together as it confuses less well educated investors.

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