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ETNs seem safe.  Investors could get stung.


Exchange-traded notes are wolves in sheep’s clothing. Although they look like a close relative of exchange-traded funds, which have become popular for good reason, they are very different beasts. Most retail investors should stay away.

UK bank Barclays recently said it would suffer a loss of nearly $600 million on ETNs due to a clerical error, but more often than not these products are associated with losses for investors rather than traders. banks that issue them. ETNs in the United States have spent nearly half of the $26 billion invested since 2006, according to rough estimates by Ben Johnson, director of global ETF research at data provider Morningstar. Issuers say such calculations are misleading, as most ETNs are used tactically by sophisticated investors to hedge or make short-term bets. Either way, the asset class is expensive, risky and complex.

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