ETNs Prove to be Prolific Asset Gatherers

A conversation about exchange traded products typically involves exchange traded funds, or ETFs, but , overlooking exchange traded notes, or ETNs, in the process.

Not only do ETNs offer exposure to a broad range of assets, in select asset classes, ETNs can be the preferred avenue for gaining exposure. ETNs are not complex.

An ETN is a bond security. A issuing financial institution promises to pay ETN investors a return on a benchmark index before the ETN matures. Additionally, some ETNs provide current distributions to investors. Since ETNs are a type of debt security, investors will have to watch out for the credit worthiness of the issuing bank. [What are ETNs?}

Although it is from a much lower base, ETNs are gathering assets at a more impressive clip on a percentage than their ETF brethren. “Total ETN assets jumped 47 percent, or $8 billion, over the past 12 months, to $25 billion, compared to about 25 percent for ETFs,” reports Eric Balchunas for Bloomberg.

When it comes to performance, some ETNs have justified the inflows. Of the 10 best non-leveraged ETPs this year, four are ETNs, a group that includes the best ETP, the iPath Dow Jones-UBS Coffee Total Return Sub-Index (NYSEArca: JO).

Other high-flying ETNs this year include the iPath Dow Jones-UBS Nickel Total Return Sub-Index ETN (NYSEArca: JJN) and the iPath Dow Jones-UBS Natural Gas Total Return Sub-Index ETN (NYSEArca: GAZ). [Ag ETFs Love the Weather]

However, the major driving force behind the rise in ETN assets, as Balchunas reports, has been master limited partnerships, or MLPs. MLPs have soared in popularity among income investors, leading to the subsequent increase in the popularity of MLP ETFs.