Exchange-Traded Notes (ETNs): 2025 Guide for Australian Investors

Exchange-Traded Notes (ETNs) are making waves in Australia’s investment landscape in 2025. With market volatility and a renewed appetite for alternative assets, investors are taking a closer look at these flexible, yet complex, financial products. But what exactly are ETNs, and how might they fit into your investment strategy this year?

Understanding ETNs: More Than Just Another Fund

At first glance, ETNs might look a lot like Exchange-Traded Funds (ETFs). Both trade on the ASX, both offer easy access to diversified exposure, and both can be bought and sold throughout the trading day. But under the hood, they’re fundamentally different.

• ETNs are debt securities issued by banks or financial institutions. Instead of holding assets like stocks or bonds, ETNs promise to pay the return of a specific index or asset, minus fees, at maturity.

• No direct ownership: When you buy an ETN, you’re essentially lending money to the issuer, who pledges to pay you based on the performance of the underlying benchmark.

• Broad exposure: ETNs can track everything from major stock indices and commodities to emerging market currencies and volatility indices.

In 2025, the ASX and global exchanges have seen a growing menu of ETNs, with issuers targeting niches like green energy, crypto indices, and even inflation-linked baskets. For investors, this means greater flexibility—but also new risks to consider.

Risks and Rewards: The ETN Trade-Offs in 2025

Why would an investor choose an ETN over a traditional ETF or managed fund? It often comes down to access and tax treatment. ETNs can provide exposure to hard-to-reach assets or strategies where direct investment is costly or impractical. For example:

• Commodities: Some ETNs track commodity prices (like lithium, uranium, or carbon credits) without the hassle of physical delivery or storage.

• Cryptocurrency indices: As of 2025, Australian regulators have softened their stance, and several crypto ETNs are now available on the ASX, letting investors gain price exposure without wallet or exchange accounts.

• Leveraged and inverse strategies: Want to bet on the ASX200 falling in the short term? ETNs can offer inverse or leveraged exposure that’s difficult to replicate with standard ETFs.

However, ETNs also come with risks that ETFs generally avoid:

• Credit risk: Since ETNs are unsecured debt, if the issuer (such as a global bank) runs into trouble, investors may get back less than expected—or nothing at all. The collapse of major European banks in late 2024 highlighted this risk, prompting ASIC to issue new ETN disclosure requirements in March 2025.

• Liquidity: While most ETNs are traded on major exchanges, some niche products can be thinly traded, leading to wider spreads and price gaps.

• Tax complexity: ETN returns may be taxed differently from ETF distributions, especially for products that roll over futures or derivatives. Always check the issuer’s PDS and recent ATO guidance.

How to Use ETNs in a Diversified Portfolio

ETNs can be powerful tools for sophisticated investors, but they shouldn’t be the mainstay of most portfolios. Here are some real-world ways Australians are using ETNs in 2025:

• Tactical plays: Short-term bets on market direction, volatility, or sector trends. For example, an ETN tracking battery metals may appeal to those bullish on EV adoption after the 2025 federal budget’s expanded green energy credits.

• Portfolio diversification: ETNs can help access non-traditional asset classes, like emerging market currencies or carbon offset indices, that are otherwise hard to reach for retail investors.

• Hedging: Inverse ETNs allow investors to hedge against downturns in specific markets without taking on the complexity of options or short selling.

Still, most financial planners recommend capping ETN exposure to a small portion of an overall portfolio, given the unique credit and liquidity risks. The 2025 uptick in ETN-related complaints to AFCA underscores the need for careful research and risk management.

Key Policy Updates and What to Watch in 2025

Several regulatory and market trends are shaping the ETN landscape for Australian investors this year:

• ASIC’s new disclosure rules: Effective April 2025, issuers must provide clearer risk warnings and daily transparency on credit exposure. This move came after retail investors faced losses in the wake of a European ETN issuer’s insolvency.

• Taxation guidance: The ATO released updated rulings in January 2025, clarifying the tax treatment of ETN returns—especially those linked to cryptocurrencies and foreign indices.

• Product innovation: The ASX is seeing a surge in thematic ETNs, from clean tech to AI, reflecting global investor demand for targeted, flexible strategies.

For investors, staying up-to-date on issuer creditworthiness, product structure, and regulatory changes is more important than ever.

The Bottom Line

Exchange-Traded Notes are versatile, innovative, and—when used wisely—can unlock new opportunities for Australian investors. But their unique risks mean they’re best suited for those who understand the fine print and stay on top of market developments. As 2025 unfolds, ETNs are worth considering for tactical plays or portfolio diversification, but a cautious approach is essential.