ETNs are unsecured debt obligations typically issued by a bank or other financial institution. ETNs do not usually pay any interest payments, instead the issuer promises to pay the investor an amount determined by the performance of the underlying index or benchmark, less any specified fees at maturity.

Additionally, ETNs can be traded on exchanges at prices set by the market similar to equities or ETFs.

ETNs do not actually hold assets to replicate the performance of the underlying index. They can be complex and include the risk that the issuer will default on the note or take other actions that may impact the price of the ETN.

ETN’s do not comply with the UCITS rules so offer less investor protection and can use complex financial techniques which increase risks for investors (such as borrowing).

Although each has distinct structural differences, they generally follow the price movements of a market, whether they are tracking indices, commodities, basket of shares or FX rates. ETPs allow you to invest in a wide range of investments and markets. However, they vary by investment market, investment strategy, legal structure and risk .

How much will it cost?

ETPs are traded like shares and are charged at normal online commission rates, which start from just £5.95. In addition, Ongoing Charges are shown in the ETP Quickrank .

ETP Risk Warning

ETPs can use complex financial techniques, meaning that these types of products may not be suitable for all investors. The value of an ETP is not guaranteed and can go down as well as up and you may get back less than you invested. If you are unsure of their suitability please seek independent financial advice. The protections available under the Financial Services Compensation Scheme (FSCS) may not be available for all types of ETPs domiciled outside of the UK.

Before you invest in an UCITS ETF you should make sure that you read the Key Investor Information Document (KIID) and Key Features Document (KFD) or other supporting information. For other types of ETP you should make sure that you read the Prospectus for the ETP you are intending to invest in, to make sure that it fits in with your investment goals. In addition, other information might be available like a fact sheet.

More risk information

Tracking error is the difference between the performance of the ETP and the investment it tracks. Tracking error depends on the market conditions at the time and can either be in the client’s favour or against them.

Certain ETPs use complex financial products such as swaps (see synthetic ETP for details), futures and options with other third party counterparties rather than purchasing the assets themselves to achieve investment performance. If the investment bank providing these complex products fails, the ETP may lose a part or all of the funds they had invested.

Investors should consult the ETP’s prospectus to understand the Counterparty risk associated with the product.

ETP providers can generate further revenue by lending their holdings (collateral) out to other third party institutions, such as investment banks. If these third parties fail and the holdings are unable to be recovered, investors could suffer a potential loss. Different ETPs have different exposures to stock lending and the ETP prospectus should be consulted to determine the Collateral Policy for that product.