Selecting and Executing ETNs

When selecting ETNs, you must execute rigorous due diligence across four core parameters:

Issuer Credit Rating

Prioritize notes backed by highly capitalized institutions (e.g., UBS eTracs or Barclays iPath). Monitor the issuer’s credit default swap spreads.

Liquidity and Spreads

Assess the average daily volume and Assets Under Management (AUM). Because the secondary market relies on institutional market makers, low liquidity can lead to punitive bid-ask spreads, wiping out any structural tracking advantages.

Maturity and Redemption Terms

ETNs have a contractually fixed maturity date (typically 10 to 30 years from issuance). Ensure the note has an active daily redemption feature allowing you to tender shares back to the issuer at NAV, bypassing potential secondary-market illiquidity.

Index Strategy and Leverage

Ensure the index strategy cannot be replicated in a standard ETF wrapper. Avoid holding leveraged ETNs (e.g., 3x levered FNGU or BULZ) for extended periods due to the identical daily-reset compounding decay that plagues leveraged ETFs.

Compare and filter prospective issuances using platforms such as Stock Analysis and CFRA Research. Prospectuses and liquidity metrics can be analyzed directly on issuer platforms, such as UBS eTracs or Barclays iPath.