What Is the Difference Between ETNs and ETFs?
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ETNs (Exchange-Traded Notes) and ETFs (Exchange-Traded Funds) are both financial instruments traded on stock exchanges, but they have significant differences in their structures and characteristics.
Definition
- ETNs are debt securities that track the performance of underlying assets, typically commodities or indices. They are issued by banks and function similarly to bonds, making them susceptible to credit risk.
- ETFs are baskets of stocks or other securities that collectively represent a specific market segment or index. They are designed to provide diversification and are actively managed.
Key Differences
Summary
In essence, ETNs are fixed-income securities that mirror the performance of a specific asset, while ETFs are funds that hold various securities to replicate an index or strategy. The choice between the two often depends on an investor's risk tolerance, fee preferences, and investment goals.