The Efficient Global Equity ETN rolls over to offer Mesh clients diversity in their portfolios
Mesh is excited to announce that our debut issuance: the Efficient Global Equity Exchange-Traded Note (ETN), is approaching its maturity date on the 10th of February 2023. This doesn’t mean the end of the ETN – it will be rolling over and will continue to be available to investors for another 5 years.
ETNs are gaining in popularity among investors as a way to diversify their portfolios with a wide variety of assets.
But what exactly are ETNs and why should investors be interested in them?
ETNs were originally developed to make investments into hard-to-access instruments, like foreign currencies and commodities, more accessible to retail investors. ETNs are structured in a similar way to how Investment Banks would structure assets for more mature investors and institutions, providing retail investors the opportunity to invest like the professionals do.
ETNs are unsecured debt securities that are traded on stock exchanges globally, in which the issuer promises shareholders a rate of return based on the performance of a benchmark such as an index like the S&P500 or the JSE Top 40. This benchmark could be the price of a commodity, the value of a currency, a basket of shares, the return on an index of bonds, or even interest rates.
An ETN is unsecured debt because it is issued by a Bank or other financial services provider (Issuer) but the issuer does not need to hold the benchmark assets in a portfolio. For example, an ETN that tracks the price of gold bets on the direction of the gold price which has been validated or guaranteed by a trusted market participant such as an exchange or investment bank. Therefore an ETN which performs close to its benchmark would rise in value when the price goes up and fall in value when the price goes down.
One important thing to keep in mind when considering investing in an ETN is the credibility of the issuer (Credit Risk). Unlike other instruments such as exchange traded funds (ETFs) or shares, the issuer’s credibility as a market participant is just as important as the benchmark that the ETN tracks. If the issuer goes out of business, the investment could lose value as the ETN is unsecured debt. This is unlike an Exchange Traded Fund (ETF), where the underlying portfolio or fund holds the assets into which the investor would like to invest. When investing always take into consideration the financial stability and credit rating of an Issuer.
So, what are the benefits of investing in ETNs?
- For one, they give investors access to a wide spectrum of returns, which can help you diversify your portfolio without the additional cost and fuss of buying into multiple individual assets.
- They offer investors exposure to an asset class or market that may be difficult or expensive to invest in directly. For example, some ETNs provide exposure to emerging markets or commodities like gold or oil. By investing in an ETN, investors can gain access to these markets without having to worry about the logistics of buying and securely storing the underlying asset.
- Additionally, ETNs are easy to acquire – they are priced at a transparent market price and trade like a share on the exchange, meaning investors can trade almost instantly.
What happens when an ETN matures?
The term “maturity” refers to the date on which a financial instrument agreement ends. On the maturity date, the issuer is liable for payment of the value of the ETN. The gains or losses of the investor are derived from the performance of the benchmark which the ETN tracks. The investor may opt to sell the ETN before its maturity or keep it until it matures to get their returns.
When an exchange traded note (ETN) matures, the financial institution offers the investor cash in an amount that reflects the underlying index’s performance.
When an ETN rolls over, as is the case with the Efficient Global Equity ETN, the maturity date is extended. This means that the issuer will not settle the value of the ETN to the Investors but rather that the ETN’s maturity date will be extended, in this case by 5 years. The ETN will continue tracking its benchmark and will continue to offer the investor growth on their investment.
In the case of the ETN rolling over, investors have the option to continue holding their position or to sell their holdings. When holding a position you continue to own the ETN and benefit from its potential growth. If however you do decide to sell, you can do so at the market price. This will effectively realise your gain or loss on the asset.
To make an informed decision, compare the price at which you bought the asset against the price at which it is being sold (or review your Profit and Loss on the asset in your Mesh Portfolio). It’s important to note that selling would initiate a tax event.
While it’s important to conduct research and do your due diligence on ETNs, or any other asset class you decide to invest in, you can be secure in the knowledge that at Mesh we take our responsibility to you very seriously. We only list financial instruments from credible and licensed issuers, that have been properly vetted and are safe to buy assets from.
It’s also important to remember that you don’t buy the assets from Mesh, you buy them from the Issuers themselves through the Mesh platform. Mesh doesn’t hold these assets in custody on your behalf, you own them directly, they are stored securely in your own private blockchain account and you can choose to sell or move them whenever you want. Our vetted and verified Issuers securely store the ETN in custody accounts and are audited regularly.
Overall, ETNs are a valuable tool for investors that want exposure to specific markets or assets. Take advantage of the ETNs and ETFs listed on the Mesh Marketplace and invest now, diversify your portfolio with a wide spectrum of traditional and digital assets and have the peace of mind of knowing that you are building a diversified portfolio of assets to secure your financial future.