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ETF vs. ETN vs. ETP – Which Is Best for Your Portfolio?
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ETF. ETN. ETP. So many initialisms. Here we’ll explore what these things are and what differences exist among them.
// TIMESTAMPS:
00:00 - Intro
00:07 - What Do the Letters Mean?
00:45 - ETF vs. ETN
// SUMMARY:
First, here’s what these initialisms stand for:
ETF – Exchange Traded Fund
ETN – Exchange Traded Note
ETP – Exchange Traded Product
Basically, ETP describes all exchange-traded products, which includes ETFs and ETNs. So ETFs and ETNs are just two types of ETPs. Put another way, all ETFs are ETPs, but not all ETPs are ETFs.
You’ve probably heard of ETFs. They’re very popular. They almost always track some index (index funds), such as the famous S&P 500.
ETNs are less prevalent and less popular. They are a relatively new product; they were first created in 2006. Like ETFs, ETNs trade on an exchange, track some index, and usually have lower fees than an actively managed fund. Unlike ETFs, however, ETNs are unsecured debt instruments.
Think of an ETN like a corporate bond. This means the ETN is issued by some institution, which carries what we call counterparty risk. This is the main difference between ETFs and ETNs that investors pay attention to. Essentially, if the issuer of the ETN goes under, there’s a chance you could lose all the money you put into it, whereas with an ETF, the shares would simply be liquidated at their market value.
ETNs do have some arguably advantages, though. They don’t buy or sell any underlying assets like ETFs do and they don’t have dividends or distributions, so there are no taxes or trading costs associated. Moreover, since an ETN doesn’t hold the assets, it doesn’t have tracking error like ETFs do.
You may run into an asset – like gold, for example – where only ETNs are available. ETNs are commonly seen for things like commodities and currencies that are harder for retail investors to buy directly.This is why they were invented in the first place. Just know that in buying an ETN, you are taking on extra counterparty risk in that you are subject to the credit rating of the issuer, so while it’s rare, there exists a non-zero probability of default. Always check out the trading volume of an ETN and the credit rating of its issuer before buying one.
As you can see, ETNs are a bit more complicated than ETFs. ETFs are easier to understand. Simplicity in portfolios is extremely valuable, particularly for new investors, so you should probably usually stick with ETFs whenever possible. Basically, only buy an ETN if it is the only product available for the asset you want.
#investing #etf #etfs
// INVEST
// SOCIAL
I appreciate all the support!
Disclosure: Some of the links above are referral links. At no additional cost to you, if you choose to make a purchase or sign up for a service after clicking through those links, I may receive a small commission. This allows me to continue producing high-quality content on this channel and pays for the occasional cup of coffee. I have first-hand experience with every product or service I recommend, and I recommend them because I genuinely believe they are useful.
// TIMESTAMPS:
00:00 - Intro
00:07 - What Do the Letters Mean?
00:45 - ETF vs. ETN
// SUMMARY:
First, here’s what these initialisms stand for:
ETF – Exchange Traded Fund
ETN – Exchange Traded Note
ETP – Exchange Traded Product
Basically, ETP describes all exchange-traded products, which includes ETFs and ETNs. So ETFs and ETNs are just two types of ETPs. Put another way, all ETFs are ETPs, but not all ETPs are ETFs.
You’ve probably heard of ETFs. They’re very popular. They almost always track some index (index funds), such as the famous S&P 500.
ETNs are less prevalent and less popular. They are a relatively new product; they were first created in 2006. Like ETFs, ETNs trade on an exchange, track some index, and usually have lower fees than an actively managed fund. Unlike ETFs, however, ETNs are unsecured debt instruments.
Think of an ETN like a corporate bond. This means the ETN is issued by some institution, which carries what we call counterparty risk. This is the main difference between ETFs and ETNs that investors pay attention to. Essentially, if the issuer of the ETN goes under, there’s a chance you could lose all the money you put into it, whereas with an ETF, the shares would simply be liquidated at their market value.
ETNs do have some arguably advantages, though. They don’t buy or sell any underlying assets like ETFs do and they don’t have dividends or distributions, so there are no taxes or trading costs associated. Moreover, since an ETN doesn’t hold the assets, it doesn’t have tracking error like ETFs do.
You may run into an asset – like gold, for example – where only ETNs are available. ETNs are commonly seen for things like commodities and currencies that are harder for retail investors to buy directly.This is why they were invented in the first place. Just know that in buying an ETN, you are taking on extra counterparty risk in that you are subject to the credit rating of the issuer, so while it’s rare, there exists a non-zero probability of default. Always check out the trading volume of an ETN and the credit rating of its issuer before buying one.
As you can see, ETNs are a bit more complicated than ETFs. ETFs are easier to understand. Simplicity in portfolios is extremely valuable, particularly for new investors, so you should probably usually stick with ETFs whenever possible. Basically, only buy an ETN if it is the only product available for the asset you want.
#investing #etf #etfs
// INVEST
// SOCIAL
I appreciate all the support!
Disclosure: Some of the links above are referral links. At no additional cost to you, if you choose to make a purchase or sign up for a service after clicking through those links, I may receive a small commission. This allows me to continue producing high-quality content on this channel and pays for the occasional cup of coffee. I have first-hand experience with every product or service I recommend, and I recommend them because I genuinely believe they are useful.
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