BERLIN – It’s easy to find investments that track the performance of such popular market benchmarks as the Standard & Poor’s 500-stock index or the Russell 2000®. In building a well-diversified portfolio, though, it’s important to venture down less-traveled roads, following a strategy or owning a kind of investment whose performance may diverge from the ups and downs of stock and bond markets.
Now an innovative type of investment — exchange-traded notes, or ETNs — may help solve this problem. Elements, a new line of ETNs that partners companies such as Merrill Lynch, Nuveen Investments and BNP Paribas, could prove particularly versatile.
“Elements will use the unique structure of ETNs to give investors access to the performance of a range of market indexes,” says Mitch Cox, Merrill Lynch Managing Director and Head of the Financial Products Group. “Depending on a particular investor’s needs, Elements provides unique access to a proprietary market strategy, fills specific asset allocation needs and helps balance a portfolio.”
Unlike index mutual funds or exchange-traded funds (ETFs), ETNs don’t buy or sell the components of an index. Instead, ETNs are debt securities that track the total return of a specific market index (keep in mind that there is an annual investor fee involved). Issued by Swedish Export Credit Corp. (AA+/Aa1), Elements uses the ETN structure to provide access to a variety of markets and strategies. Two of the Elements offerings are linked to the Rogers International Commodity Index, which provides exposure to commodity futures contracts representing a basket of commodities consumed worldwide. However, the platform goes beyond commodities investing.
For instance, the Spectrum Elements “momentum investing” strategy tracks the Standard & Poor’s 500’s 10 subindices across different sectors, emphasizing the better-performing stocks. (Note that Elements linked to other indices are planned to be introduced in subsequent months.)
With Elements, investors can tap these and other investment indexes. Of course, the decision to add an ETN to a portfolio, like any other investment choice, depends on your allocation strategy, risk profile and other factors.
Your financial advisor can tell you more about these new investments and help you weigh the risks and potential benefits.
(The writer is a Merrill Lynch Senior Financial Advisor. She can be reached at 410-213-9084.)