Investors Pull out of ETNs

Wall Street Journal reporter Shefali Anand examines the recent decline in Exchange Traded Notes (ETNs) assets.

In the article ETNs Lose Favor with Investors, Issuers, Anand notes that after peaking at $7.3 billion of assets in June, ETNs now account for just $3.9 billion. 16% of the asset decline has been due to investors pulling money out of ETNs.

ETNs are similar to ETFs in that they trade like stocks. Unlike ETFs, ETNs are debt instruments issued by investment banks and other financial companies that typically promise investors a return equal to the performance of an index minus a fee.

Until the financial crisis, ETNs were attractive because they provided easier access to asset classes like commodities and currencies. However, the stress on the banks and other investment companies that issue ETNs has caused them to come under more scrutiny and experience investor redemptions.

One of the last ETNs to come to market was the First Trust Enhanced 130/30 Large Cap Index ETN (JFT) which replicates a long-short strategy popular with institutional investors. The note is linked to the performance of an index that quantitatively sorts stocks and then shorts the bottom 30% while going long on the top 30%. The note is an unsecured debt security issued by JP Morgan Chase.

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