Are ETNs Realizing Their Potential? An Empirical Investigation of ETNs vs. Other Exchange-Traded Products in the Precious Metals’ Space
University of London, Birkbeck College - School of Economics, Mathematics and Statistics
Deutsche Bank AG (London)
Brigham Young University
Journal of Index Investing, 2012, Forthcoming
Within the precious metals space, we outline and empirically investigate 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. We 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. We are unable to statistically corroborate this notion. We do, however, note that some exchange traded products charge non-trivial fees (upwards of 3.74%) to investors that 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. We find no empirical evidence supporting this possibility.
Keywords: Exchange-Traded Notes, Exchange-Traded Funds, Precious Metals
JEL Classification: G10, G11, G12, G14
Date posted: July 26, 2012
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