How ETNs Became ETFs’ Riskier, Less-Loved Cousins

Exchange-traded funds, which soared in popularity during the last decade, have a lesser-known cousin called the exchange-traded note. While ETFs and ETNs may sound a lot alike, there are huge differences, especially when it comes to risk. Massive price swings in 2020 have contributed to greater awareness about the downsides of ETNs. Now, their issuers are shutting them down at the fastest pace ever.

ETFs were born as a variation on index funds, low-cost vehicles that make it easy for investors to track broad market moves. An investor in an index fund that tracks the S&P 500 buys a small amount of shares in all 500 companies. An ETF that tracks the index buys the same stocks but puts them in a pool and sells shares of that pool. That makes it easier to trade and brings tax advantages.