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There's an ETN for That!

Written by Barry Dumas | 20-Apr-2022 07:45:00

Stock Picks

No excuses anymore; there's an ETN for that! Wanna invest in Amazon? Too expensive? Nope, there’s an ETN for that! Invest directly in commodities like oil; you guessed it, there is an ETN for that!

We all know the term Exchange Traded Fund or the abbreviation ETF by now, and if it is still foreign to you, where have you been? No stress, head on over to EasyETFs and get sorted. But the lesser-known Exchange Trade Product (ETP) on everyone's radar is the Exchange Traded Note (ETN), which is available in your EasyZAR wallet. 

So, what are ETNs?

Very simply put and like an ETF, an Exchange Traded Note (ETN) also trades on an exchange and tracks a benchmark index or other instrument's performance. But unlike an ETF which holds the assets such as stocks, or commodities that are the basis of the price of the ETF, an ETN does not.

An ETN is an unsecured debt security issued by a bank, and the return of the ETN is linked to the performance of a benchmark index, commodity, or share it tracks minus the management fee. For more on ETNs, check out our New First Rand ETNs blog with the latest additions on the EasyEquities platform.

Some Pros & Cons

Barclays Bank developed ETNs to make investing in hard-to-access instruments like commodities and other instruments like currencies accessible for retail investors. But like most things in life, there are positives and negatives to keep in mind; here are some on ETNs:

Pros: Unlike ETFs, which sometimes suffer from tracking errors, an Exchange Traded Note (ETN) does not, as the issuer (bank) is on the hook to pay the total value of the benchmark if any shortfall exists minus the expense ratio.

Cons: Exchange Traded Notes (ETNs) are less liquid than ETFs and are subject to market risk and credit risk of the institution (bank) that issues the ETNs.

ETN Picks

Commodity ETNs:

SB Brent Crude Oil ETN (SBOIL)

Oil prices have skyrocketed due to sanctions on the world's third-largest oil producer, Russia, and things in the oil market might heat up again. The oil market is on edge, and the latest news from Libya could further impact supply and oil prices. Libya shut down its largest oil field amid protests against its Prime Minister Abdul Hamid Dbeibah.

No matter how small, any disruption is set to impact oil prices, like the latest from the International Monetary Fund (IMF), which reduced its economic growth outlook. Oil prices dipped from this news as global demand concerns crept in.

SB Copper ETN (SBCOP)

Not only did the Russian invasion of Ukraine impact oil but other commodities as well, and one that saw prices rise on concerns of scarcity, is copper. Supply chain disruptions have seen copper stockpiles at multi-year lows, driving base metal prices to new highs.

Investment banks have raised their price targets on copper siting rising shortfalls of the metal are expected over the next two years. Chile is the leading copper producer globally, and the Chilean Copper Commission (Cochilco) is ramping up production. It has increased its price projections for copper to $4.40 per pound.

Click logos to view ZAR ETNs
on EasyEquities

 

Share ETNs: 

Firstrand Quanto ETN on Berkshire Hathaway Inc (BHETNQ)

Value investing might not be as thrilling as growth investing. Still, value stocks are where it is at in the current economic environment, and nothing personifies value investing like Warren Buffett.

New acquisitions were added to Berkshire Hathaway’s impressive portfolio, which ended a drought for the famous investor, Warren Buffet. The $11.6 billion deal to purchase the insurance company Alleghany Corp which compliments the Berkshire Hathaway offering.

Berkshire Hathaway's secret lies in the ability of its founder Warren Buffett to pick great cyclical businesses, which capitalize on long economic expansions, as we have seen. Another plus point is that as the U.S Federal Reserve reduces its balance sheet and ramps up interest rates, Berkshire's sizable financial sector holdings should do well in a rising-rate environment.

Firstrand Quanto ETN on Tesla Inc (TSETNQ)

Tesla Inc is undoubtingly the leader in the electric vehicle (EV) space, well, at least for now! And with the U.S company, earnings season in full swing is worth the look. With a flurry of good news events for the "King of EV" moving into its earnings release, we could see the share price tick higher.

But all eyes will be on production numbers which could come in lower than expected due to closures. Tesla is set to report its earnings today after the U.S stock market close.

Another positive for shareholders or even ETN holders tracking the share price is that Tesla could reopen its Shanghai factory much sooner. The EV maker's most productive facility was closed due to the latest COVID-19 outbreak but is set to reopen as soon as this week. Tesla is also set to ramp up production across its facilities in Germany and Texas.

Click logos to view ZAR ETNs
on EasyEquities

New to investing

and want to know more about our other stock picks?

Read: Investing in the future of tourism 🏨

 

Sources –EasyResearch, Fidelity, Business Insider, Reuters, Mining.com, Barron’s, FNB.

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Barry is a market analyst with GT247, with a wealth of experience in the investment markets. Now in his tenth year in the markets, Barry "The Beef" Dumas brings a combination of technical analysis and fundamental insights to the table

 
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