What actually is an ETN?

[Polymathic]

Browsing my EE this morning, I then for the first time realized there are navigation buttons when you look at Equities and one these options are ENTs. Browsing through the ETN sections I see ETNs related to a lot of major international companies like Facebook, Alphabet, Microsoft etc but looking at their performance history they all barely moved and upon closer inspection I realized that all of them seem to have only been launched in October this year.

Anybody have an idea what exactly are ETNs, how do they differ from ETFs and are they worth investing in?

 

[The_Ogre]

Simply put, an ETN gives you the right to the gains or losses of the underlying index or share.

I sell you a piece of paper as a contract for an apple. If the apple rises or falls in price, you either pay or get paid on an agreed upon date.

 

[Cius]

An ETN are somewhat like a Bond. It is an exchange traded note. Generally issued by companies via the exchange. Instead of the underlyings being stocks its for debt based stuff. The price fluctuates like a stock though and at the end you get the value that the index it tracks indicates. Unlike a bond there are no interest or coupon payments.

 

[Jehosefat]

Just note that ETNs carry the credit risk of the issuer on top of the risk of the underlying stocks or index. Meaning that if the ETN is issued by Sanlam (for example) and Sanlam go bust, you are not covered and just go into the pool as another unsecured creditor in the liquidation proceedings.

ETFs are usually required to actually hold the underlying stocks in bankruptcy remote vehicle so if the fund manager goes under you should still get all your cash out..

 

[Polymathic]

Just note that ETNs carry the credit risk of the issuer on top of the risk of the underlying stocks or index. Meaning that if the ETN is issued by Sanlam (for example) and Sanlam go bust, you are not covered and just go into the pool as another unsecured creditor in the liquidation proceedings.

ETFs are usually required to actually hold the underlying stocks in bankruptcy remote vehicle so if the fund manager goes under you should still get all your cash out..

So are they worth the risk? I like the idea of getting to specific tech giants unless there are ETFs that based on the tech giants?

 

[Jehosefat]

So are they worth the risk? I like the idea of getting to specific tech giants unless there are ETFs that based on the tech giants?

Depends on who the issuer is really. I haven't really researched them too much.

 

[koffiejunkie]

One key difference I've gleaned is that: With an ETF, you own the underlying shares. If EE goes bust, you may have to jump through administrative hoops, but you'll end up getting your units. If the fund manager goes bust, same story, you'll end up with the underlying shares. Or at least the money. Or something.

With an ETN you don't own the shares, just a claim to the profit/loss. If the issuer goes bust, you lose.

As for why one would use this? No idea. Maybe it's a day trading thing.