What Is an Exchange-Traded Note (ETN)?

By Lee Samaha – Updated Dec 13, 2024 at 10:18 AM

Key Points

ETNs offer unique exposure to strategies like covered calls, allowing access to assets that are complex to replicate individually.
ETNs are riskier than ETFs due to their reliance on the financial health of the issuing bank.
The value of ETNs can decline despite asset performance if the market doubts the issuer's financial stability.

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Adult uses calculator in front of laptop next to a larger monitor with charts. — Image source: Getty Images.

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Exchange-Traded Fund (ETF)

An exchange-traded fund, or ETF, allows investors to buy many stocks or bonds at once.

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ETNs are not deposit liabilities and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency of the United States, Switzerland or any other jurisdiction. Any payment on the ETNs is subject to our ability to pay our obligations as they become due.
Credit Suisse.

In other words, if the issuer can't meet the ETN's obligations, then there's very little in the way of protection for the investor.

As such, the pricing of ETNs also reflects the market’s view on the ability of the institution to make good on the ETN. As a result, a lack of confidence in the issuer's solvency could lead to an unusual situation where the underlying assets in the ETN are performing well, but its price is declining because of market worries about the issuer responsible for the ETN.

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About the Author

Lee Samaha is a contributing Stock Market Analyst at The Motley Fool covering industrials, electricals, energy, materials, transportation, and infrastructure stocks. Prior to The Motley Fool, Lee was a Civil Engineer and Investment Manager. He holds a Bachelor of Civil and Structural Engineering from Southampton University and a Certificate in Investment Management from Chartered Institute for Securities & Investment. Lee first cut his investing teeth on The Motley Fool bulletin boards (commonly referred to as the “Fool Boards,”) and he’s infinitely grateful to all of the investors he learned from in this powerful investing community.

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