Exchange traded notes (ETNs) are often referred to as the cousin of exchange traded funds (ETFs). Like ETFs, they trade all day on exchanges, tout low fees and give access to challenging areas of the market. But they differ in some important ways.
What Are ETNs?
ETNs are debt instruments backed by the full faith and credit of the issuer. They follow an underlying index or product and anyone can buy them. Since they are debt, if the issuer goes bankrupt, you become another creditor and you’ll have to get in line.
ETNs exist in far fewer numbers than ETFs, and they have attracted about 1% of the assets held in ETFs. One factor that could explain their lesser popularity is the risk associated with investing in them. ETNs are essentially debt instruments, meaning that if the issuing bank goes under, you’ll have to get in line with other creditors for your money. [Differences Between ETFs and ETNs.]