Frequently Asked Questions

What Are Exchange-Traded Funds and Exchange-Traded Notes?

Both exchange-traded funds (ETFs) and exchange-traded notes (ETNs) offer investors access to returns on various market benchmarks. The primary difference between the two is that an ETF is typically a fund that holds a portfolio of securities, while an ETN is structured as a debt security.

ETFs and ETNs trade on exchanges with liquidity similar to a listed stock. Access to these products may vary by broker.

There are several other differences between ETNs and ETFs. From a regulatory standpoint, ETNs fall under the Securities Act of 1933, while ETFs are governed by the Investment Company Act of 1940. As a debt instrument, ETNs have both market risk (the underlying they track can go up and down) and issuer risk (the issuing firm could default on its obligation), while an ETF is subject to market risk. The tracking error relative to a stated strategy is generally lower for an ETN than for an ETF (since the ETF must hold securities, while the ETN is just a promise to pay a pattern of returns). Finally, the issues of each type of fund vary, as covered in the table below.

Exchange-Traded Notes Exchange-Traded Funds
Liquidity Exchange Listed Exchange Listed
Registration Securities Act of 1933 Investment Company Act of 1940
Recourse Issuer Risk Portfolio of Securities
Principal Risk Market and Issuer Risk Market Risk
Tracking Error Minimal to None Low
Transparency Performance of ETNs generally depends on the return of the underlying index, minus fees and costs. There is no underlying portfolio of securities that investors have recourse to. Performance of ETFs generally depends on the return on a portfolio of securities of instruments held by the fund, less applicable fees and costs. Holdings of the fund are disclosed by the fund sponsor.
Accessibility Access through any brokerage account, although some broker restrictions may apply. Access through any brokerage account, although some broker restrictions may apply.
Institutional Size Redemption Daily to the issuer, subject to minimum redemption amount. Daily to the issuer, subject to minimum redemption amount.
Short Sales Yes, on an uptick or downtick. Yes, on an uptick or downtick.


Investments in ETPs involve risk, including the possible loss of principal, and are not appropriate for all investors. Non-traditional ETPs, including leveraged and inverse ETPs, pose additional risks and can result in magnified gains or losses in an investment. Specific risks are outlined in the fund prospectus and may include concentration risk, correlation risk, counterparty risk, credit risk, market risk, interest rate risk, volatility risk, tracking error risk, among others. Investors should consult with their tax advisors to determine how the profit and loss on any particular investment strategy will be taxed. Tax laws and regulations change from time to time and may be subject to varying interpretations. The information in this program is provided for general education and information purposes only. No statement within this program should be construed as a recommendation to buy or sell a security or to provide investment advice.

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