Are ETNs Realizing Their Potential? An Empirical
Investigation of ETNs versus Other Exchange-Traded Products
in the Precious Metals’ Space

Abstract

Within the precious metals’ space, this article outlines and investigates empirically three potential advantages that ETNs may have relative to other exchange-traded products, such as ETFs. First, ETNs may be able to offer investors access to a wider array of assets, commodities, currencies, and indices with a greater variety of leverage ratios. The authors find that ETNs do, in fact, offer investors a much greater variety of leverage ratios in the precious metals’ space compared to other exchange-traded products. Second, ETNs may be able to offer investors lower annual expenses than comparable ETFs or other similar exchange-traded products. The authors are unable to statistically corroborate that notion, however, they note that some exchange-traded products charge nontrivial fees (upward of 3.74%) to investors who are not included in the annual expense fee, whereas ETNs assess no such implicit fees. Third, ETNs may enjoy greater price efficiency owing to the absence of tracking error. The authors find no empirical evidence supporting that possibility.

TOPICS: Commodities, exchange-traded funds and applications, technical analysis