Exchange-traded products (ETPs) are financial instruments that track underlying assets or indices and trade on stock exchanges just like individual stocks. Investors can buy and sell ETP shares throughout the trading day, with prices fluctuating according to market dynamics.

ETPs are popular because they provide easy exposure to a wide range of investments, including stocks, bonds, commodities, and currencies. They are broadly classified into three main types: exchange-traded funds (ETFs), exchange-traded notes (ETNs), and exchange-traded commodities (ETCs). Each serves different investment goals and strategies.

ETFs: Exchange-Traded Funds
ETFs are the most widely recognized type of ETP. They invest in a collection of securities, such as stocks or bonds, and often track a specific index like the S&P 500.

• Passive vs. Active ETFs: Most ETFs are passive, designed to mirror an index, while some actively managed ETFs aim to outperform benchmarks.
• Physical vs. Synthetic Replication: Physically replicated ETFs directly own underlying assets. Synthetic ETFs use derivatives to replicate performance, which can reduce costs and tracking errors but introduces counterparty risk.

ETFs offer investors diversified exposure with relatively low costs and strong liquidity, making them a core tool in multi-asset portfolios.

ETNs: Exchange-Traded Notes
ETNs are debt securities issued by banks that promise to pay returns based on the performance of a specific index at maturity. Unlike ETFs, ETNs do not own underlying assets and do not make interim interest payments.

• Risks: ETNs carry issuer credit risk, meaning the investor’s returns depend on the bank’s solvency.
• Structure: They are zero-coupon debt instruments that provide targeted exposure to niche indices or market segments.

ETCs: Exchange-Traded Commodities
ETCs allow investors to gain exposure to commodities without holding the physical asset or dealing with futures contracts.

• Physically Backed vs. Synthetic: Some ETCs are physically backed, storing the actual commodity as collateral, which adds security but may increase costs. Others use derivatives to track commodity performance.

ETCs are particularly useful for investors seeking diversification through commodities like gold, oil, or agricultural products.

Liquidity and Regulation
Because all ETPs trade on exchanges, they offer liquidity and flexibility through secondary-market trading. Regulatory oversight varies by ETP type, and investors should review the prospectus for details on investment objectives, risks, fees, and expenses.

Key Takeaways

ETPs provide access to a wide range of assets—stocks, bonds, commodities, and currencies—supporting diversified portfolios.

• ETFs: Invest in a basket of assets, often tracking an index.
• ETNs: Debt securities that track an index, subject to issuer risk.
• ETCs: Provide commodity exposure without direct ownership, may be physically backed or synthetic.
• Each type carries unique risks, including tracking errors (ETFs), issuer risk (ETNs), and counterparty risk (synthetic ETFs).

Final Word
ETPs are versatile tools for investors seeking broad or targeted exposure across financial markets. Understanding the differences among ETFs, ETNs, and ETCs—and their associated risks—is essential for building a well-diversified portfolio.

Glossary:

• ETF: Collective investment scheme tracking a basket of assets, often UCITS-type.
• ETC: Debt-based certificate providing exposure to a single commodity or commodity index.
• ETN: Zero-interest debt instrument offering exposure to a niche index or underlying instrument.