“Hoping to profit from rising prices for oil and emerging-markets stocks, investors have been buying exchange traded funds (ETFs) lately. But instead of betting on ETFs, you may prefer exchange traded notes (ETN). The notes suffered when credit markets froze last fall, and some analysts warned that ETNs were about to disappear altogether. Now, the instruments are back on firm footing, offering efficient vehicles for investing in commodities, emerging market stocks, currencies and other assets that are difficult to trade,” Stan Luxenberg Reports From The Street.

“There are 86 ETNs listed on the New York Stock Exchange. Like exchange traded funds, ETNs trade constantly and can be sold short. But ETNs can be more tax efficient and track benchmarks more closely than ETFs do. To appreciate the appeal of the notes, compare PowerShares India Portfolio(PIN), an ETF, and iPath MSCI India Index ETN(INP),” Luxenberg Reports.

“To track the Indian market, the ETF actually buys and hold shares of 50 of the biggest stocks. When it makes purchases, the fund must pay brokerage commissions and absorb other transaction costs. Buying stocks in India can be particularly expensive because some of the stocks are small and hard to trade. In addition, owning the stocks can generate tax bills. Under Internal Revenue Service rules, the ETF must distribute dividends to investors, who owe taxes on the income,” Luxenberg Reports.

“In contrast, the ETN doesn’t own any stocks outright. Instead, the ETN backer issues notes that track the value of the benchmark. If the index rises 10%, investors get exactly that amount minus expenses. Because the ETN holds no stocks, investors receive no income and need not pay any taxes unless they sell the notes at a profit,” Luxenberg Reports.

Here are the profiles of the ETN and ETF below:

The investment (INP) seeks to track the performance, before fees and expenses, of the MSCI India Total Return Index. The index is a free float-adjusted market capitalization index that is designed to measure the market performance of Indian securities. It is currently comprised of the top 68 companies by market capitalization listed on the Nation Stock Exchange of India.

The investment (PIN) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Indus India index. The fund normally invests substantially all of the assets in a wholly-owned subsidiary in Mauritius. It will normally invest at least 90% of total assets in securities that comprise the index and ADRs based on the securities in the index.

Full Story: HERE

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