ETFs are subject to market risk, whereas ETNs are subject to both market risk and the credit risk of the investment bank issuing the ETN. Given the rapid implosion of the banking structure in the 2008 financial crisis, the credit risk issue should not be dismissed as irrelevant. Banks do collapse.
ETNs are less liquid than ETFs and they may also contain holding-period risk. The performance of ETNs over long periods can differ from the performance of the underlying index or benchmark.
As described above, the ability to escape the short-term capital gains tax is one of the most compelling benefits to ETNs. It's quite possible that the Internal Revenue Service may change the rules in a way that erodes the current benefit.
In next blogpost, we will show you which one to choose - ETN or ETF.