Market volatility and the precariousness of our financial institutions are making some exchange traded note (ETN) investors a little nervous.
The recent failure of Lehman Brothers has highlighted the risks of ETNs, which are credit instruments. And even when salvation for a firm that has gone bust arrives, there’s no guarantee – as the in case of the Barclays-Lehman deal. Barclays has said it won’t be assuming the the obligation of Lehman’s line of ETNs.
As a result, ETF expert Debbie Fuhr says that many investors are shying away from them in favor of funds that have a fiduciary responsibility. Fuhr now works as an ETF analyst at Barclays.
Evidence of the move away from ETNs toward funds with a structure that is more tangible came when counter-party fears were fresh during the Lehman/American International Group (AIG) meltdown. The level of flows into traditional ETFs went up and questions began to flood in regarding the future of the Opta-Lehman line of ETNs and the assets involved in them, reports Rob Mackinlay for InvEstigate.
This is also evidence of how much investors are in need of education and how important it is to analyze trends and new products before jumping in. The recent activity in the markets also underscores the importance of understanding the risks of certain products.
Paul Amery for Index Universe says he doesn’t see how the ETN market can regain the confidence of investors and recover from the shock of recent weeks. We’re in for some interesting times ahead.
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.