Recently questions have been asked about the difference between exchange-traded funds (ETF) versus exchange trading notes (ETN). ETNs are structured products that are issued as a senior note whereas ETFs is a stake in the underlying equity. So an ETN is like a bond in that they are unsecured and that hold various types of assets. They can be bonds but the asset could also be any group of stocks. ETNs are a prepaid contract. ETFs represent a stake in the assets it represents. So if you have an ETF of the S&P500 it tracks the S&P500, the ETN will do the same thing but it is a structured note issued by somebody that says they will represent the S&P500.

ETNs track their underlying index minus the annual expense cost and unlike ETFs, there is no tracking error. There is a difference in tax treatment and there are credit risks with ETNs since they are issued by a company such as Goldman Sachs or JPMorgan Chase, and if they issued an ETN and then went bankrupt then holders of the ETN may not get all their money back. An ETF has no credit risk, they virtual hold the underlying index though they do have that pesky tracking error risk. When you get into leverage ETFs or for that matter ETNs then there is another layer of risk and they do not hold the underlying equities normally.

The bottom line between the two is that there is not a lot of difference.

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