Exchange-Traded Note (ETN)
An Exchange-Traded Note (ETN) is a type of unsecured, debt security that is issued by a Financial Institution. ETNs are designed to track the performance of a specific market Index or Benchmark, minus applicable fees. They are traded on major exchanges, similar to Stocks, and their value is based on the performance of the underlying Index, rather than the performance of the issuing institution.
Examples of ETNs include:
- iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX): This ETN tracks the performance of the S&P 500 VIX Short-Term Futures Index, providing exposure to volatility in the Stock market.
- Barclays iPath Gold ETN (GBUG): This ETN aims to provide exposure to the price of gold by tracking an Index that reflects the performance of gold bullion.
Cases where ETNs might be used include:
- An investor seeking to hedge against market volatility might buy a VIX ETN to profit from market downturns.
- A trader interested in commodity prices might invest in a gold ETN as a way to gain exposure to gold without physically holding the Asset.