ETFs vs. ETNs
I wrote earlier about the relatively new iPath MSCI India ETN (INP) - here’s a detailed post from James Picerno of The Capital Spectator blog on the differences between exchange traded funds (ETFs) and exchange traded notes (ETNs).
- Most ETFs are built as investment companies á la mutual funds. As such, ETFs represent ownership in a basket of securities. ETNs, by contrast, are promises to deliver a return that tracks an index. To be precise, iPath ETNs are debt securities issued by Barclays —senior, unsecured, unsubordinated 30-year debt securities.
- ETNs, like any debt security, carry credit risk—a distinguishing characteristic absent in ETFs.
- Holding an ETN in a taxable account for more than a year can offer superior tax treatment relative to an identical trade with certain ETFs.
The one thing common between both is their (current & expected) spectacularly rapid growth!
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