Information on Emerging Market ETNs - Exchange Traded Notes
Although ETNs are similar to exchanged traded funds in many ways, ETNs are debt securities and not equity securities. This means that an exchange traded note represent loans that the borrower has promised to repay by a fixed date.
When you purchase an ETN, you are buying a promise. The promise that the exchange traded note issuer will pay the note according to the terms spelled out in the ETNís prospectus.
According to USA Today and other studies, an ETN may very well track the underlying index better than their ETF counterparts. The primary reason being a fund has to use futures contracts and other non standard investments to track the index. Because a note is not a fund, it does not have to line up the various investments that mirror the index. The only thing an ETN needs to do is promise to pay returns according to the index underlying movements.
The only emerging market ETN currently listed is by Barclays, and it is the India Index ETN. The returns on the emerging market exchange traded note are primarily based on the return of underlying index as well as the creditworthiness of Barclays itself. And their is nothing to hear as Barclays has been in operation for over 300 years, has a AA credit rating from S&P, and Barclays has more than $1.5 trillion in assets.