ETFs, ETNs & Leveraged Funds — Q&A

Open-end management companies, but they are not mutual funds. They trade on exchanges in the secondary market as negotiable securities between investors.

“Spyders” (S&P 500), “DIAmonds” (Dow Jones Industrial Average), “Qubes” (Nasdaq 100).

ETFs are negotiable — buy/sell from other investors at market price plus/minus commission. Mutual funds are redeemable — transactions always involve the fund sponsor at NAV.

Down 6% (inverse of 3% × 2).

Sophisticated investors only — those with market knowledge and ability to withstand large losses. Typically used only for short periods.

Spyder listed in 1993. First active ETF (Bear Stearns Current Yield Fund) in 2008. For 15 years only passive ETFs existed.

ETFs represent ownership of underlying securities — no default risk. ETNs are debt (bonds) — the issuer promises to pay index returns and investors face credit/default risk (e.g., Lehman Brothers).

ETNs are more tax efficient than ETFs — taxable only when sold or at maturity. ETFs are generally more tax efficient than mutual funds.

Assume passive unless the question explicitly references active ETF characteristics.