What is the difference between a certificate and an ETN?

The Difference Between Tracker Certificates and ETNs (Exchange-Traded Notes)

Understanding the difference between tracker certificates and ETNs is crucial for making informed investment decisions. These financial instruments have unique characteristics that investors should consider. Here’s a breakdown of what sets tracker certificates apart from ETNs and key points investors should keep in mind.

Tracker Certificates

Tracker certificates are financial instruments typically issued by banks and designed to track the price performance of an underlying asset, such as stocks, crypto, commodities, or indices. They are derivative instruments, meaning they mirror the value movements of a specific underlying asset, giving investors exposure without requiring them to own the asset directly.

• Synthetic Exposure and Credit Risk:
  Tracker certificates often have synthetic exposure to the underlying asset. This means they are not backed by the physical asset but rely on the issuer's creditworthiness and solvency. If the issuer defaults, investors risk losing their entire investment, even if the underlying asset has gained value.

  
  

• Bull and Bear Options:
  Tracker certificates can be structured as "bull" or "bear," depending on whether they aim to gain value when the underlying asset increases (bull) or decreases (bear).

  
  

• Leverage:
  Some tracker certificates offer leverage, amplifying returns based on the leverage factor. While this can lead to high returns, it also significantly increases risk.

  
  

ETNs (Exchange-Traded Notes)

ETNs are a segment within the broader category of exchange-traded products (ETPs). They are listed on stock exchanges and traded like regular stocks, making them easy to buy and sell.

• Collateral and Credit Risk:
  ETNs are often backed by the underlying assets, held separately from the issuer's balance sheet at a custodial institution. This reduces the credit risk compared to tracker certificates.

  
  

• Leverage Options:
  While ETNs can include leverage, the majority are non-leveraged, appealing to investors seeking long-term investment options.

  
  

• Cost Structure:
  ETNs tend to have lower management fees and are generally cost-effective for long-term investors.

  
  

Key Differences Between Tracker Certificates and ETNs

1. Collateral and Credit Risk:

   
   

   • Tracker Certificates: Typically unsecured with synthetic exposure, relying on the issuer's creditworthiness. Default by the issuer could result in a total loss.

     
     

   • ETNs: Backed by the underlying assets held separately, reducing credit risk.

     
     

2. Leverage:

   
   

   • Tracker Certificates: Often include leverage, increasing both potential returns and risks.

     
     

   • ETNs: May offer leverage but are mostly non-leveraged, making them suitable for long-term investors.

     
     

3. Cost Structure:

   
   

   • Tracker Certificates: Can have higher fees, particularly those with leverage or bull/bear strategies.

     
     

   • ETNs: Generally have lower fees, making them cost-efficient for long-term investments.

     
     

Summary

Choosing between tracker certificates and ETNs should depend on your investment goals, risk tolerance, and time horizon. Tracker certificates carry higher risk due to issuer credit risk and are often more suited for short-term exposure or specific trading strategies. On the other hand, ETNs tend to be a safer option for long-term investments thanks to their asset-backed structure.

Crypto investments involve high risk. Virtune does not provide investment advice. Investments are made at your own risk. Securities can increase or decrease in value, and there is no guarantee of recovering invested capital. Read the prospectus, KID, and terms at www.virtune.com.