ETN’s Can Save You Money On Taxes Versus ETF’s

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October 29, 2009 11:26am ETF BASIC NEWS NYSE:UNG

tax“Given the tracking and tax problems surrounding ETFs such as United States Natural Gas (UNG), United States Oil (USO), and many others, it might be worth revisiting


 the infamous exchange traded note (ETN) structure instead.  ETNs are basically bonds that pay investors a cash pay-out when an investor wants them redeemed. This pay-out is related to the performance of some index, such as the S&P500,” Vincent Fernando Reports From Business Insider.

“While high profile losses by investors in some Lehman ETNs destroyed their popularity, ETN’s have advantages over ETFs when it comes to A) tracking a benchmark and B) taxes.  First of all, ETN returns are usually calculated as simply your benchmark’s performance minus fund expenses. For example, this avoids the mess of an ETF having to roll into all kinds of futures positions, trying to track say natural gas, to the detriment of investor performance.  Savvy traders can’t game ETNs as they do for ETFs either,” Fernando Reports.

“A lot of due diligence is required for any investment, and the universe of ETNs remains limited. Yet their tax and tracking benefits might outweigh the credit risk attached to these investments, because the dirty secret of somes ETFs is that their taxes can really kill you over long periods of time,” Fernando Reports.

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