[Ntrails]

You still don't directly own the assets in the case of an ETF as far as I am aware? You own shares in the ETF and the ETF owns the assets so I imagine in the case of liquidation you're below creditors? Someone more familiar with the concept would need to elucidate.

In addition, a synthetic ETF the company doesn't own the underlying exactly (but some portfolio which perfectly replicates it) - which is again slightly different from a Note I think but still has counterparty risk in there.

[runeks]

If the fund owns the assets, and you own shares in the fund, then you own a part of the assets. Who else would? The management?

[TuringNYC]

You are right, in the case of ETFs. The parent is describing ETFs but my comment (the grandparent) was describing ETNs in response to the great-grandparent which is also speaking about ETNs. Phew!

OK -- to clarify my original comment -- ETNs DO NOT own the asset. The issuer of the ETN promises value equal to the asset, but that promise is worth only as much as the Issuer actually is good for. In cases like Lehman's bankruptcy, the promise would need to go through bankruptcy like any other promise. Thus, ETNs are like debt linked to an asset index rather than an interest rate/index. So not only are you exposed to the risk that underlying/linked asset loses value ("market risk"), but you are also exposed to the risk that the underlying/linked asset does fine yet the Issuer cannot make good on their promise ("counterparty risk").

With ETFs, on the other hand, the fund (and hence you) generally own the asset, but even then, some ETFs are slightly different in that they actually own derivatives on the assets such as futures. They are almost the same since futures are daily-settled. ETNs are not daily-settled thus carry longer-term counterparty risk.