In the month of May, two new exchange traded notes debuted, the slowest pace in over 19 months. In total, new exchange traded product launches decreased, with a total of 8 ETF and ETN introductions hitting the market.
ETNs, like ETFs, are made up of a portfolio of stocks, bonds or other securities and are traded through out the day throughout market hours. When you purchase an ETN, you are actually investing in an unsecured debt obligation, which is reliant on the stability or credit risk of the sponsor, or issuing bank. Additionally, since ETNs are not registered under the 1940s investment act, investors do not get the added safeties found in ETFs, like standardized disclosures or a board of directors that have the shareholders backs. [ETNs are not ETFs]
The latest ETNs available this month, according to Ron Rowland for Invest with an Edge, include: [What is an ETF? – Part 12: Exchange Traded Notes]
- ETRACS Monthly Pay 2x Leveraged Dow Jones Select Dividend Index ETN (NYSEArca: DVYL) This is linked to the monthly compounded 2x leveraged performance of the Dow Jones U.S. Select Dividend Index reduced by the annual tracking rate of 0.35%. The current 2x index yield is 7.9%. Investors must remember that leveraged funds and notes are not buy-and-hold instruments, rather, they must be monitored daily to be fully effective.
- ETRACS Monthly Pay 2xLeveraged S&P Dividend ETN (NYSEArca: SDYL) This note is linked to the monthly compounded 2x leveraged performance of the S&P High Yield Dividend Aristocrats Index reduced by the annual tracking rate of 0.30%. The current 2x index yield is about 7.0%
“This is the first time that exposure to this theme has been offered in note format in the US,” says one US-based banker. “There is a high correlation between equities and dividends, and consequently there has been an increase in the volume of options on dividends in an attempt grasp and profit from the economic wealth of companies,” Hannah Collins for Risk.net reports. [Special Report: Surveying the Dividend ETF Landscape]
The trend toward more dividend focused strategies is still strong possibly due to the income enhancing possibilities and the relative stability of the companies.
Tisha Guerrero contributed to this article.
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.