An Exchange Traded Note (ETN) is a common name for a senior unsecured debt obligation designed to track the total return of an underlying market index or other benchmark, minus fees. ETNs themselves are not rated. The issuer’s credit rating, however, is an important consideration for ETN investors.
An ETN allows individual investors to buy an obligation, similar to a forward contract, which is traded on an Exchange. ETNs may be linked to a wide variety of assets. Today there are many types of ETNs linked to indexes and/or single reference assets based on a variety of products such as commodity futures (e.g., energy, grains, industrial metals, livestock, and petroleum), foreign currencies (e.g., Euro, yen), and equities (grouped by such categories as industry sector, strategy or geographic location).
ETNs can offer investment exposure to market sectors and asset classes that may be difficult to achieve in a cost-effective way with other types of investments. ETNs can also act as an effective hedging tool.
