Another problem is that these days, investors might be wary of the term “credit risk.” If an ETN issuer goes out of business, the investor faces a loss. And the credit crunch hasn’t inspired much confidence in the financial stability of some institutions.
When ETNs were first launched, their tax status was touted as a major advantage. But last year, the government did away with the advantages for foreign currency ETNs, and is currently weighing how they will handle other types.
We think that these issues and others are likely coming in to play. Since most of these funds have launched in the last six months, the market has been challenged in general and there’s not a lot of new money out there. Those investors who are looking for commodity exposure are likely putting their money in funds that have been established longer.
Make no mistake: there is risk, as with anything else. However, we keep in touch with providers, and we feel certain of their financial stability. When the market turns around once again, perhaps these interesting products will begin to capture the attention of more investors.