Are all of your ETF holdings truly exchange-traded funds?  Or, are some of them exchange-traded notes, otherwise known as ETNs?  Chances are, you might not even know.  However, this knowledge is crucial if you want to get a handle on the risks associated with your holdings.

ETNs are unsecured debt securities – bonds.  Even if your ETN is tracking a stock index or a commodity index, you are still holding a bond, an unsecured note.  If the issuer defaults or declares bankruptcy, you have no recourse except to stand in line with all the other unsecured creditors and hope that some day you might see a partial return of your investment.

Think this is unlikely?  Think again.  On September 12, 2008, Lehman Brothers declared bankruptcy.  ETN owners may not have known it at the time, but Lehman was the issuer of three ETNs (see table of ETN closures below).

This is very different from investing in ETFs.  ETFs are set up as independent legal entities.  The money received by the fund is used to buy securities, and the assets of the fund are kept separate from the issuer and sponsor of the fund.  If the issuer of an ETF goes under, then the fund just hires a new manager.  That structure does not exist with ETNs.

So, how can you tell if what you own is an ETF or an ETN?  The best way of course, is to read the prospectus.  However, I know of far too many investors who have never done that.  Instead, they tend to look at fund summaries and fact sheets.  Others might put their expensive subscription to Morningstar to work.  But guess what, Morningstar does not make a distinction between ETFs and ETNs.  However, Morningstar does append the letters “ETN” to the names of about two-thirds of them.

At the end of 2008, the number of U.S. listed exchange-traded products totaled 845, consisting of 760 ETFs and 85 ETNs.  The comprehensive list of ETNs appears below.  The name of the issuer is often unrelated to the name of the ETN, and in many cases may surprise you.  However, these are the names you need to know, because that is where the risk of default lies.

There are credit ratings available for the ETN issuers.  However, none of those ratings are repeated here due to concerns of accuracy and timeliness.  This is a fast-moving market, and the fate of an issuer can change quickly.  Furthermore, none of the issuers will announce any concerns of ongoing viability for fear of a run on their assets that will surely put them under.

U.S. LISTED ETNS AS OF JAN. 27, 2009

Ticker Name Note Issuer
ADZ PowerShares DB Agriculture Short ETN Deutsche Bank AG, London Branch
AGA PowerShares DB Agriculture Double Short ETN Deutsche Bank AG, London Branch
AGF PowerShares DB Agriculture Long ETN Deutsche Bank AG, London Branch
AYT Barclays GEMS Asia 8 ETN Barclays Bank, PLC.
BAL iPath DJ-AIG Cotton ETN Barclays Bank, PLC.
BDD PowerShares DB Base Metals Dbl Lg ETN Deutsche Bank AG, London Branch
BDG PowerShares DB Base Metals Lng ETN Deutsche Bank AG, London Branch
BOM PowerShares DB Base Metals Dbl Sh ETN Deutsche Bank AG, London Branch
BOS PowerShares DB Base Metals Sht ETN Deutsche Bank AG, London Branch
BSC Elements Ben Graham Small Cap Value ETN Deutsche Bank AG
BSR BearLinx Alerian MLP Select ETN (see notes)
BVL Elements Ben Graham Large Cap Value ETN Deutsche Bank AG
BVT Elements Ben Graham Total Mkt Value ETN Deutsche Bank AG
BWV iPath CBOE S&P; 500 BuyWrite Index ETN Barclays Bank, PLC.
CNY Market Vectors Chinese Renminbi/USD ETN Morgan Stanley
COW iPath DJ AIG Livestock Total Return ETN Barclays Bank, PLC.
DAG PowerShares DB Agriculture Double Long ETN Deutsche Bank AG, London Branch
DDP PowerShares DB Commodity Short ETN Deutsche Bank AG, London Branch
DEE PowerShares DB Commodity Double Short ETN Deutsche Bank AG, London Branch
DGP PowerShares DB Gold Double Long ETN Deutsche Bank AG, London Branch
DGZ PowerShares DB Gold Short ETN Deutsche Bank AG, London Branch
DJP iPath DJ AIG Commodity Total Return ETN Barclays Bank, PLC.
DOD Elements Dogs of the Dow Total Return ETN Deutsche Bank AG
DPU PowerShares DB Commodity Long ETN Deutsche Bank AG, London Branch
DRR Market Vectors Double Short Euro ETN Morgan Stanley
DTO PowerShares DB Crude Oil Dbl Shrt ETN Deutsche Bank AG, London Branch
DXO PowerShares DB Crude Oil Dbl Long ETN Deutsche Bank AG, London Branch
DYY PowerShares DB Commodity Double Long ETN Deutsche Bank AG, London Branch
DZZ PowerShares DB Gold Double Short ETN Deutsche Bank AG, London Branch
EEH Elements Spec LgCap US Sector Mo ETN Swedish Export Credit Corp.
ERO iPath EUR/USD Exchange Rate ETN Barclays Bank, PLC.
FUD E-TRACS CMCI Food Total Return ETN UBS AG
FUE Elements MLCX Biofuels ETN Swedish Export Credit Corp.
GAZ iPath DJ AIG Natural Gas Total Return ETN Barclays Bank, PLC.
GBB iPath GBP/USD Exchange Rate ETN Barclays Bank, PLC.
GCE Claymore CEF Index GS Connect ETN The Goldman Sachs Group, Inc.
GOE Elements MLCX Gold ETN Credit Suisse
GRN iPath Global Carbon ETN Barclays Bank, PLC.
GRU Elements MLCX Grains Total Return ETN Swedish Export Credit Corp.
GSC GS Connect S&P; GSCI Enh Commodity ETN The Goldman Sachs Group, Inc.
GSP iPath S&P; GSCI Total Return Index ETN Barclays Bank, PLC.
GWO Elements CS Global Warming ETN Credit Suisse
ICI iPath Optimized Currency Carry ETN Barclays Bank, PLC.
INP iPath MSCI India Index ETN Barclays Bank, PLC.
INR Market Vectors Indian Rupee/USD ETN Morgan Stanley
JEM Barclays GEMS Currency Index ETN Barclays Bank, PLC.
JFT First Trust Enhanced 130/30 Large Cap ETN JPMorgan Chase & Co.
JJA iPath DJ AIG Agriculture ETN Barclays Bank, PLC.
JJC iPath DJ AIG Copper ETN Barclays Bank, PLC.
JJE iPath DJ AIG Energy ETN Barclays Bank, PLC.
JJG iPath DJ AIG Grains ETN Barclays Bank, PLC.
JJM iPath DJ AIG Industrial Metals ETN Barclays Bank, PLC.
JJN iPath DJ AIG Nickel ETN Barclays Bank, PLC.
JJP iPath DJ AIG Precious Metals ETN Barclays Bank, PLC.
JJS iPath DJ AIG Softs ETN Barclays Bank, PLC.
JJT iPath DJ AIG Tin ETN Barclays Bank, PLC.
JJU iPath DJ AIG Aluminum ETN Barclays Bank, PLC.
JO iPath DJ AIG Coffee ETN Barclays Bank, PLC.
JYN iPath JPY/USD Exchange Rate ETN Barclays Bank, PLC.
LD iPath DJ AIG Lead ETN Barclays Bank, PLC.
LSC Elements S&P; Commodity Trends Idr ETN HSBC USA Inc.
LSO Elements MLCX Livestock ETN Credit Suisse
NIB iPath DJ AIG Cocoa ETN Barclays Bank, PLC.
OIL iPath S&P; GSCI Crude Oil Total Return ETN Barclays Bank, PLC.
OLO PowerShares DB Crude Oil Long ETN Deutsche Bank AG, London Branch
PGD Barclays Asian&Gulf; Currency Reval. ETN Barclays Bank, PLC.
PGM iPath DJ Platinum ETN Barclays Bank, PLC.
PMY Elements MLCX Precious Metals ETN Credit Suisse
PTD E-TRACS CMCI Short Platinum Exc Ret ETN UBS AG
PTM E-TRACS CMCI Long Platinum TR ETN UBS AG
RJA Elements Rogers Agriculture ETN Swedish Export Credit Corp.
RJI Elements Rogers Commodity TotRet ETN Swedish Export Credit Corp.
RJN Elements Rogers Energy ETN Swedish Export Credit Corp.
RJZ Elements Rogers Metals ETN Swedish Export Credit Corp.
SGG iPath DJ AIG Sugar ETN Barclays Bank, PLC.
SZO PowerShares DB Crude Oil Short ETN Deutsche Bank AG, London Branch
UAG E-TRACS CMCI Agriculture TR ETN UBS AG
UBC E-TRACS CMCI Livestock Total Return ETN UBS AG
UBG E-TRACS CMCI Gold Total Return ETN UBS AG
UBM E-TRACS CMCI Industrial Metals TR ETN UBS AG
UBN E-TRACS CMCI Energy Total Return ETN UBS AG
UCI E-TRACS CMCI Total Return ETN UBS AG
URR Market Vectors Double Long Euro ETN Morgan Stanley
USV E-TRACS CMCI Silver Total Return ETN UBS AG
WMW Elements Morningstar Wide Moat Focus ETN Deutsche Bank AG
© Copyright 2009, AllStarInvestor.com

Note: BearLinx Alerian MLP Select ETN (BSR) is an unsecured note originally issued by Bear Stearns.  Presumably, this note was assumed by J.P. Morgan Chase as part of their acquisition of Bear Stearns, however we were unable to verify.

U.S. ETN CLOSURES AS OF JAN. 27, 2009

Ticker Name Disposition
EOH Opta Lehman Agriculture Pure Beta ETN Victim of 9/12/08 Lehman Bankruptcy
PPE Opta S&P; Private Equity Notes 2038 ETN Victim of 9/12/08 Lehman Bankruptcy
RAW Opta Lehman Commodity Index ETN Victim of 9/12/08 Lehman Bankruptcy
ADE Elements Australian Dollar AUD/USD ETN Closed 11/17/09 w/ orderly liquidation
CUD Elements Canadian Dollar CAD/USD ETN Closed 11/17/09 w/ orderly liquidation
EGB Elements British Pound GBP/USD ETN Closed 11/17/09 w/ orderly liquidation
ERE Elements Euro EUR/USD ETN Closed 11/17/09 w/ orderly liquidation
SZE Elements Swiss Franc CHF/USD ETN Closed 11/17/09 w/ orderly liquidation
© Copyright 2009 AllStarInvestor.com

 

Disclosure:  Long some of the listed securities.