The names might sound somewhat similar, but there are key differences between exchange traded funds (ETFs) and exchange traded notes (ETNs).

Mike Burnick from Burnick’s Global Market Beat sorts it all out. First, ETN shares don’t represent a fractional ownership of a fund’s underlying assets. Instead, they are debt securities with a stated maturity date. Second, they also involve more risk than ETFs. You’re not only assuming market risk, but you’re risking that the issuer of the ETN might not be able to pay up when the time comes.

Lastly, there are tax issues with ETNs that are still being sorted out by the IRS. ETNs that track foreign currencies have already lost their tax breaks. The IRS is still deciding what the rules will be for ETNs tracking stocks and commodities.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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