ETF Trends
ETF Trends

The mutual fund industry isn’t so excited about exchange traded funds (ETFs), which are seen as a threat to their multi-trillion dollar industry. It’s almost a certainty that they will try to put the kibosh on any product seen as infringing on their territory.

The latest threat is exchange traded notes (ETNs), says Jonas Ferris for MaxFunds. The primary force behind ETNs is Barclays iPath Currency ETNs. The provider is already a big player with ETFs. Their lineup of ETNs is largely focused on currencies and commodities.

Vanguard has their fighting gloves on now, and reining in ETNs has become "the issue of the year." The Investment Company Institute (ICI), the industry trade group that represents mutual funds, sent letters to Congress and the Treasury Department calling the tax breaks ETNs offered unfair.

It worked, and in December, the Treasury Department eliminated the tax breaks on foreign currency ETNs. A ruling on other types of notes could come later this year.

Zack Miller for BloggingStocks reports that those other ETNs don’t pass the taxes through to their investors as "no tax consequences befalls the noteholder until the security is liquidated or matures." That beats mutual funds, which pass along capital gains and income distributions to all shareholders.

It’s no wonder they’re trying to stop the tax advantages allowed by ETNs. But will making ETNs look less attractive tax-wise really send investors scurrying back to mutual funds?

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.