Exchange-traded notes are like the forgotten stepchildren of the ETF industry: unloved and overlooked. Investors (particularly taxable investors) are missing out.

According to the National Stock Exchange, U.S. ETNs had $6.9 billion in assets at the end of September. ETFs were literally 100 times more prevalent, with $697 billion in assets. That included $62 billion just in long commodity ETFs.

That’s just crazy. And it highlights investors’ irrational fear of the ETN product structure.

I remember when ETNs first came to market in 2006: Investors couldn’t get enough of them. Barclays Capital launched the iPath Dow Jones-UBS Commodity Index ETN (NYSEArca: DJP) and it quickly gathered assets.

The reason was simple: ETNs offered two huge advantages over commodity ETFs.

First, they promised perfect tracking. If you bought an ETN, you would receive the full return of the benchmark, minus the fund’s expenses. Period. That’s handy, since commodity ETFs have been more prone to tracking error

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Proposed ETFs would be first to cover the two precious metals.

 

Recent filings by London-based ETF Securities (ETFS) indicate that U.S. investors may soon be able to access two precious metals via products structured in a way similar to the SPDR Gold Shares ETF (NYSE Arca: GLD). The ETFS Palladium Trust and the ETFS Platinum Trust each will hold physical bullion of their respective metals.

Palladium and platinum futures are traded in the U.S., but currently there are no exchange-traded funds covering the two elements. Barclays offers the iPath Dow Jones-AIG Platinum exchange-traded note, but it is a credit note, and does not take physical positions in the underlying metals. The ETF Securities products should appeal to investors looking for investment vehicles with tangible assets.

A few years ago, there were rumors that a bullion-based platinum ETF was being developed in the U.S. At the time, however, there were concerns

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