By contrast, since ETFs actually own the assets they track, their market prices are supported by the intrinsic value of the underlying components.
With no such constraints, ETNs are free to track nearly any investment.
Attempting to mirror many such investments in a traditional ETF would be difficult or impossible, creating logistical obstacles for the fund manager to navigate and increasing the fund's operational costs, and therefore increasing the costs to investors.ETN investors receive a cash payment linked to the performance of the underlying index (minus fees) when the note matures.ETNs represent senior unsubordinated debt that otherwise puts investors in a good position for repayment.Unless the value of all those components drops to zero, the instrument will not be worthless.As discussed previously, ETNs are debt notes.
The weights of the 10 sub-indexes are computed each day based on performance and correlation.Therefore, an ETNs issuer doesnt have to worry about periodically rebalancing its assets and all the problems that process can create.In 2007, the IRS made an unfavorable ruling regarding currency-linked ETNs, which effectively makes investments in those ETNs taxable at the less favorable ordinary income rate.While this simplifies ETN-related tax considerations, its not an attractive option for income investors.This can result in additional fund costs, and some ETFs do a better job than others of tracking their respective indices.Like ETFs, and unlike bonds, ETNs may come with an annual expense ratio.Tax Treatment, relative to bonds, funds, and even regular stocks, ETNs often come with simpler, more attractive tax considerations. .