E TF can be said to be the most popular commodity in the traditional financial market in recent years. Because it has the characteristics of both open-end funds and stocks, it has become the first choice of many investors. In January this year, the Bitcoin spot ETF, which was officially listed in the United States, aroused widespread market response. Many analysts and institutions are also optimistic that the Ethereum spot ETF will be listed as soon as July.
But sometimes readers will see ETP or even ETN... and wonder what the difference is between them and ETFs? Therefore, this article is organized for readers. What are the differences between the names of these common financial products? What are the common types? What are its characteristics, advantages and disadvantages?
Extended reading: Popular Science for Beginners | What is Bitcoin ETF and why is the cryptocurrency market so exciting?
What is ETP?
The full name of ETP is Exchange Traded Products, which is called "Exchange Traded Products" in Chinese. Unlike buying individual stocks, ETP securitizes various assets (such as stocks, bonds, commodities) and packages them into products that can be traded on the exchange. Financial product. Investors can indirectly participate in the rise and fall of these underlying assets through ETPs and achieve diversified investments.
Usually the trading nature and liquidity of ETP will be higher than that of direct investment in the underlying assets, which greatly improves investment flexibility.
Analysis of advantages and disadvantages of ETP
advantage:
- Covers various assets and investment strategies
- Provide greater exposure to stocks and indices
- A pooled investment structure that is usually cheaper than the underlying investment and is a low-cost alternative to funds
- Some ETPs may enjoy tax benefits
shortcoming:
- Prices fluctuate daily, frequent transactions incur additional handling fees, and there may be a risk of loss.
- The trading volume of each ETP is different, and some have poor liquidity.
- There is a difference between the market price and the net value of some ETPs. When a commodity is bought and sold on the exchange, its real-time quotation and current value are not necessarily the same.
Common types of ETP
The common types of ETP can be divided into the following 4 subdivided commodities:
- Exchange Traded Funds (ETFs)
- Exchange Traded Notes (ETN)
- Exchange Traded Debt (ETD)
- Exchange Traded Commodities (ETC)
ㄧ, ETF (Exchange Traded Fund)
Fund products that passively track indexes, industries or asset portfolios are currently the most common ETPs.
ETF Advantages:
- Track an index or portfolio of assets to provide good diversification
- Low cost, low general overhead
- Most ETFs are highly liquid and can be bought and sold on exchanges at any time.
- Some ETFs enjoy tax benefits
ETF Disadvantages:
- There may be some price error
- The volatility of an index or portfolio can affect the performance of an ETF
- If ETF liquidity is poor, there may be a problem of large bid-ask spreads
2. ETN (Exchange Traded Note)
Track an index, commodity or investment strategy with a note . Similar to ETFs with expiration dates , ETNs do not hold any commodities, have no principal protection, no guarantees, and no price limits.
For example, if a bond has been sold out today, you can purchase ETN as an alternative. You do not actually hold the bond, but the index will rise and fall with the bond. At this stage, most of the ETFs in Taiwan are sufficient for investors to purchase and are relatively safe.
Advantages of ETN:
- Track complex investment strategies or commodity indexes
- No costs of physical asset management
- No asset management fees
ETN Disadvantages:
- The issuer has credit problems and there is a risk of default
- The transaction price may deviate significantly from the net asset value
- Tax treatment is average, not as favorable as ETFs
3. ETC (Exchange Traded Commodities)
Tracking a single commodity or commodity index, such as metals, energy, agricultural products, etc., ETC allows investors to access the commodity market without purchasing futures contracts or physical commodities. The stock price will also fluctuate with the rise and fall of related commodity prices. It is relatively unpopular in the investment market.
Advantages of ETC:
- Providing convenience for commodity investment
- Eliminate the management costs of physical goods such as storage and transportation
- Can effectively diversify investment portfolios
ETC Disadvantages:
- Need to bear the risk of commodity price fluctuations
- Vulnerable to regulatory policies
- Compared with the spot commodity, there may be price difference risk
4. ETD (Exchange Traded Bond)
Taking bonds as the underlying, it is also called baby bond. Because the trading amount of traditional bonds was relatively high in the past, products such as ETD appeared. Although ETD is less popular, it has the advantage of tax exemption and makes transactions more convenient. However, ETDs have the same default risk issues as general bonds, and the market is small and there are not many choices.
These ETPs are listed and traded on stock exchanges, and investors can buy and sell ETPs just like stocks. ETPs come with a variety of investment strategies, such as tracking an index, commodity or asset. Investors can indirectly participate in the rise and fall of these targets through ETP.
ETD advantages:
- Providing convenience and liquidity for bond investing
- Can track a specific bond index or strategy
- Lower cost than direct investment in bonds
ETD Disadvantages:
- Exposed to interest rate risk and credit risk
- May be less liquid than bonds
- Price error risk
Summarize
Currently, ETF is the most common and mature ETP. It has the advantages of low cost and good liquidity, and has become an indispensable tool in the investment market. However, investors are reminded to carefully choose the target that suits them and understand the risks in depth.
