SmartMoney’s Paulette Miniter warns investors that the appeal of exchange traded notes or ETNs has faded in light of the current credit crisis.
In the article, Banks’ Woes Make ETNs Too Risky Right Now, Miniter points out that ETNs are backed by the creditworthiness of the bank or investment company that issued them. Their cousins, ETFs, do not come with credit risk because they are backed by underlying securities.
Theory turned into reality with the bankruptcy of Lehman Brothers, a sponsor of three ETNs that have stopped trading and will likely be delisted.
According to the article, the four largest ETNs are: