Your ETF Tax Questions Answered
What is a Schedule K-1?
Many people decided to get out of exchange-traded notes over the past nine months due to their inherent credit risk exposure. The duress of the backing banks fully justified such a move by savvy investors. After all, investors were seeking only the returns on their respective indexes. They were not seeking credit risk to financial institutions, nor were they compensated adequately by all ETNs for such risk.
The most notable use for ETNs was to gain commodity exposure, and the most popular means was previously iPath Dow Jones-AIG Commodity Index (DJP). Many people sold DJP and other ETNs last year, and we completely understand why investors seeking commodity exposure would opt for a different investment vehicle during a dire economic climate for banks. We wrote about the credit issues regarding ETNs in our articles titled "ETN Credit Risk Rears Its Ugly Head," "ETNs Demystified," and "Our New ETN Outlook."
Paul Justice does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.