As you know, there are many types of ETFs. However, you should be aware that there are different types of ETNs as well. So once you understand the differences between exchange traded funds and exchange traded notes, you can look over the various types of ETNs and see how they can best work in your portfolio.
1. Commodity ETNs
Like commodity ETFs, commodity ETNs seek to emulate the price performance of a particular commodity or commodity index. Some of the more popular commodity ETNs track products such as gold, oil, and energy.
Usually commodity ETNs consist of derivative assets such as forward contracts, futures, and options. The goal is to be able to invest in a commodity like oil without actually having to buy a barrel of oil.
2. Currency ETNs
Another popular type of exchange traded note is a currency ETN. Like currency ETFs, these types of ETNs look to track the price of a particular currency. They can track a single foreign currency like the British Pound or track a basket of currencies like the Euro.
Currency ETNs are a good way to hedge inflation risk or gain exposure into foreign markets. Another way to gain exposure to foreign investing is the use of foreign ETFs as well.
3. Emerging Market ETNs
Speaking of gaining foreign exposure, another type of ETN to consider is emerging market ETNs. If there is a particular country or region that is up-and-coming, an emerging market ETN can help investors gain exposure to that market.
Examples of emerging market ETNs are the iPath MSCI India Index ETNs that include Indian components such as financials, IT, industrials, utilities, energy, and consumer staples.
4. Strategy ETNs
The last type of ETN I want to discuss is a strategy ETN. If you have a particular investing strategy you want to implement, strategy ETNs may be a boon to your portfolio. There are many types of strategy ETNs to utilize, such as exchange traded notes linked to the performance of the S&P BuyWrite Index.
So while ETFs are great assets to have in your portfolio, don’t forget about ETNs as well. Now you have that many more weapons in your investing arsenal.
