Take Note of Exchange-traded Notes

Physician's Money Digest, November 2007, Volume 14, Issue 11

Investors can get into the market of trading raw material stocks by buying exchange-traded notes (ETNs). ETNs, created and sold by Barclays Bank, are debt securities backed by the credit of Barclays Bank that track an index of stocks, currencies, or commodities and are bought and sold like stocks. Barclay's iPath ETNs track the performance of the Dow Jones-AIG commodity index and oil indexes from S&P and Goldman Sachs.

Barclays plans to expand to other markets by offering nine new sectors including agriculture, grains, and metals. While ETNs do not provide actual ownership of commodity shares, Barclays matches any gains in the tracked index. A fee of 0.75% of annual assets will be subtracted from the investor's payout after the ETN reaches maturity. A charge may be applied for redeeming the note before maturity. The tax advantage of ETNs stems from the fact that they generate no distributions; therefore, there are no capital gains taxes.