A primer on ETNs

The ETF industry is huge. Now, ETNs are getting a lot of attention.

By Kim Peterson Dec 11, 2009 2:44PM
You've no doubt heard a lot about ETFs (exchange-traded funds) by now, but what about ETNs?

They're "hot new debt securities," according to DailyFinance, and are growing in popularity.

In its most basic form, an ETN (exchange-traded note) is a long-term loan. Investors provide money to the issuer, with the promise that they'll get it back -- plus interest -- in 20 to 30 years.

But you don't have to hold on to them for that long. ETNs are bought and sold on the market just like stocks.

In fact, ETNs are often tied to a specific index, and their results are intended to mirror those of the index.

Experts tell DailyFinance that investors looking at ETNs need to closely monitor the credit rating of the issuer.

"ETNs are a great tool for investing, with the understanding that you have credit exposure to the underlying company," says Michael Goodman, a CPA and certified financial planner with Wealthstream Advisors. "This was huge during the financial meltdown. If you were holding Lehman ETNs, then you could have lost big, so you need to understand this and keep track of your exposure."

DailyFinance has a nice breakdown of ETNs if you want to learn more.

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