ETNs are a type of debt security that trade on exchanges and offer a return linked to a market index or other benchmark. Unlike exchange traded funds (ETFs), ETNs do not buy or hold assets to duplicate the performance of the underlying index - some of the indexes and investment strategies used by ETNs can be complex and without much performance history. The return on an ETN generally depends on price changes if the ETN is sold prior to maturity, as with stocks or ETFs, or on the payment of a distribution if the ETN is held to maturity. An ETN's closing value is calculated by the issuer and is distinct from an ETN's market price, which is the price at which an ETN trades in the secondary market. Investors should understand that an ETN's market price can significantly deviate from its indicative value. Therefore, investors should avoid buying ETNs that are trading at a premium to its closing or intraday indicative value.
Investors should keep the following risks associated with ETNs before making an investment decision:
-Credit Risk: ETNs are unsecured debt obligations of the issuer.
-Market Risk: As an index's value changes with market forces, so will the value of the ETN in general, which can result in a loss of principal to investors.
-Liquidity Risk: Even though ETNs are exchange-traded, a trading market may not develop.
-Price-Tracking Risk: Investors should be wary of buying at a price that varies significantly from closing and intraday indicative values.
-Holding-Period Risk: Some leveraged, inverse and inverse leveraged ETNs are designed to be short-term trading tools, and the performance of these products over long periods can differ significantly from the stated multiple of the performance of the underlying index or benchmark during the same period.
-Call, Early Redemption, and Acceleration Risk: Some ETNs are callable at the issuer's discretion.
-Conflicts of Interest: The issuer of the notes may engage in trading activities that are at odds with investors who hold the notes - shorting strategies, for example.
Have you suffered losses resulting from exchange-traded notes recommended by your broker? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at email@example.com for answers to any of your questions about this blog post and/or any related matter.