What is an exchange-traded note (ETN)? Definition, risks, rewards - Business Insider

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ETNs combine a bond's reliability with a stock's profitability. Here's how they work, and how to weigh the risks and rewards.

Since ETNs rack their associated metrics point for point, you won't miss out on profits due to funds' underperformance, expense ratios, or tracking errors. — which uses financial derivatives and hedging techniques — can offer even greater returns. Think of it as a multiplier. While a regular ETN typically tracks its underlying index on a one-to-one basis, a leveraged ETF may aim for a two-to-one or even three-to-one ratio.

Or, if your interest is still piqued by ETNs, think about what asset classes are currently missing from your portfolio, and look for a note that tracks them. Once you've found one you like, observe how it's behaved over time, mark the reputation and stability of the issuing bank, and make sure you understand exactly what each note and its underlying asset contains.

Then and only then should you take note to add that particular exchange-traded note to your portfolio.

 

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