XETs

XETs, or Exchange-Traded Notes, are financial instruments that track the performance of an underlying asset, index, or strategy but are issued by banks or other financial institutions rather than being directly tied to a security like an exchange-traded fund (ETF). Unlike ETFs, which hold the assets they represent, XETs are essentially debt obligations of the issuing institution, meaning they carry credit risk in addition to market risk.

XETs are traded on stock exchanges, similar to ETFs, providing liquidity and intraday pricing. They are often used to gain exposure to complex or hard-to-trade assets, such as commodities, currencies, or leveraged strategies, without the need for direct investment. Common uses include accessing international markets, hedging, or investing in strategies like inverse or leveraged returns.

One key distinction is that XETs do not pay dividends; instead, their value is derived from the performance of the underlying reference asset. However, issuers may charge fees, which can affect returns. Additionally, XETs are subject to potential credit risk, as the issuer’s financial health can impact their value. If the issuer defaults, investors may face losses beyond the market downturn of the underlying asset.

XETs are regulated under securities laws but may have different tax treatments depending on jurisdiction. They are often marketed to sophisticated investors due to their complexity and associated risks. Popular issuers include banks like Barclays, Deutsche Bank, and JPMorgan Chase, which provide a range of XETs targeting various markets and strategies.