Exchange Traded Notes (ETNs) are exchange-traded debt instruments that give investors access to a wide spectrum of assets. The investor lends money to the issuer of the ETN, usually a bank, and then receives a return based on the movements in a specific benchmark. Benchmarks can be based on interest rates, commodity prices, a basket of Shares or Bonds or a currency.
Who is this for?
ETNs are used by both professional and private investors looking to diversify and enhance the performance of their portfolios. The product is especially useful in granting individual investors exposure to assets that are difficult to access as an individual investor. As they involve a higher degree of risk than ETFs, they suit investors will a higher risk tolerance.
- More cost-effective to invest in the ETN than in the individual underlying assets.
- Invest in ETNs through a monthly debit order or relatively small one-off contribution.
- Do not need to be held to maturity and you can buy and sell them at any time.
- Are highly liquid.
- Track the performance of the underlying assets very closely and these assets are always known and made visible to the investor.
- Regularly pay stable interest.
- Are subject to the same market risks as the underlying assets that they track and will be exposed to the same day-to-day price fluctuations.
- When an investor buys an ETN, the issuer promises to pay the amount reflected in the index, minus fees, upon maturity. This means that an ETN has an additional risk compared with an ETF: If the issuer goes bankrupt, the investment might lose value; just as a debt would.
How to get it
- Open a brokerage account with a JSE Equity Market member.
- Open an investment plan with an ETN provider and make a lump sum investment or invest by debit order.
- Use a platform that allows you to buy ETN products from different issuers.