MEDIUM AND LONG-TERM INVESTMENTS
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ETFs, ETPs, ETNs and ETCs
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Exchange-traded products (ETP) are types of securities that track underlying security, index, or financial instrument.
ETPs trade on exchanges similar to stocks and are traded on the stock exchange.
ETP's pricing mechanisms are similar to those of stocks. They are traded via the exchange. This means, there are no minimum holding periods and prices update throughout the day.
Cost-efficient alternative to actively managed funds.
Possible capital gain tax implications from distributions.
Illiquidity of some ETP's may mean that it is not always possible to exit an investment as quickly as some investors would wish.
Investors should buy an ETP when seeking to have exposure to a certain sector or asset class, but prefer to diversify their exposure through the use of an ETP that holds multiple underlyings rather than just a single instrument.
It is a means of investing in a certain asset class without having to purchase the underlying asset.
ETF's are a cost-efficient way for investors to have broad market exposure and avoid concentration risk affiliated with purchasing single stocks. Inherent diversification within ETF's assists investors in increasing their diversification and reducing portfolio risk (ETFs are traded on the stock exchange as a listed security).
Broad market exposure
Tradable like a stock
Usually covers a whole index, i.e.it might give you exposure to companies you wouldn't otherwise invest in.
ETF's have no minimum or maximum holding duration.
Distribution or reinvestment depends on the structure of the ETF.
Cost-efficient and diversified investment approach.
Require less monitoring and rebalancing than a portfolio made up of individual stocks.
ETN's and ETF's have the same pros and cons. The difference is that ETNs have a fixed-income characteristic, and usually a maturity date, which ETF's do not have. As these are debts notes, the buyer has no guarantee that the borrower will meet his obligations (and they are traded on Stock Exchange).
Until the maturity date.
ETNs give you a fixed-income style security used to track an index.
Securities are used to track an underlying index of securities and trade on major exchanges. However, ETNs are baskets of unsecured debt securities. An ETN pays investors the return received from the index they track at the maturity date, minus any fees or commissions. ETNs are similar to bonds inasmuch as investors receive the return of their original invested amount-the principal-at maturity. However, the ETN does not generate periodic interest payments. Also, investors who buy ETNs, do not own any of the securities in the index they track. As a result, the likelihood that investors will be paid back the principal and the returns from the underlying index, is dependent on the creditworthiness of the issuer.
An exchange-traded commodity allows investors to focus on a single commodity, whereas exchange-traded funds (ETF) tend to invest more broadly over a wide variety of securities or companies.
That note is collateralized by physical commodities, that are bought using the cash from inflows into the ETC. If assets are used as collaterals, they reduce the risk if the underwriter of the note defaults.
Illiquidity can be an issue if an investment needs to be exit quickly
Until the contract maturity (if any), otherwise there is no maximum holding period.
They are traded on the Stock Exchange.
An exchange-traded commodity can track individual commodities or a commodity basket and provide an interesting alternative to trading commodities in the futures market.
ETFs tend to track equities, whilst ETCs track commodities.