The WSJ‘s Ian Salisbury is reporting that exchange-traded notes or ETNs have seen investors yank $460 million from 90 ETNs in September.
In the article Investors Sour on Exchange-Traded Notes, Salisbury adds that October could see further redemptions. The industry’s largest ETN, the saw 12% of its shares redeemed through October 30. (DJP)
ETNs are different from their ETF cousins in that they are an unsecured debt security of the sponsoring bank or investment company while an ETF can be directly redeemed for underlying assets.
An ETN is designed to produce returns that track an index of assets that are difficult for individual US investors to access on their own. In addition to gaining exposure to the ups and downs of the asset class tied to the ETN, investors take on extra risk because the debt securities are subject to the bank’s credit risk. If the bank fails, such as in the case of Lehman Brothers, ETN holders stand in line with other unsecure creditors to get their money back.
Salisbury points out that investors moving funds out of ETNs are likely to be responding to the weakening financial condition of the banks in addition to falling asset values.