ETFs, meanwhile, are tradable baskets of securities in which shareholders own a slice of an actual portfolio, similar to traditional mutual funds. ETFs can hold stocks, bonds, futures contracts, currencies, commodities or other assets.
In the U.S., there are 1,239 ETFs with total assets of $1.4 trillion. The ETN market is much smaller with 206 products and $17.4 billion, according to XTF.com.
Tax treatment between ETFs and ETNs differ markedly with regard to distributions, says Morningstar analyst Abraham Bailin.
“An ETN is technically a debt security, and as such, its distributions are taxed at ordinary income rates, like any taxable bond,” he explained in an article. ETNs do not hold index constituents and investors are taxed on capital gains upon sale, Bailin said.
“I don’t think this proposed tax change would have a radical effect on the use of ETNs,” said said Dan Besse, managing director at Pacilio Wealth Management, in the Bloomberg story. “Although a lot of wealth managers, including us, are aware of tax ramifications, we’re trying to make the best and most suitable investments for our clients.”