Why ETNs Are Slowly Being Fazed Out

While the exchange traded product universe is comprised of exchange traded funds and exchange traded notes, ETNs are slowly being pushed to the side with ETFs taking center stage.

About 61 ETNs, or a third of the U.S. ETN market, continue to trade despite obstacles to the creation of new shares, and others have been delisted from major exchanges, the Wall Street Journal reports.

Similar to index-based ETFs, ETNs also track some sort of index as part of their investment strategy. However, an exchange traded note, like the name implies, is a type of debt note that trades on an exchange.

ETNs are debt securities issued by financial institutions that promise to pay the return of an index, minus fees and taxes. Therefore, investors are exposed to the credit risk or the possibility the underwriting bank goes bankrupt. The note can be vulnerable if the issuer gets into financial trouble, otherwise known as a default. With an ETN, an investor can lose some or all of their investment if the ETN issuer goes under.