Exchange-traded notes (ETNs) are similar to ETFs in that they track an index, commodity or currency. They are generally only issued by banks. According to Investopedia, an ETN’s value is affected by the credit rating of the issuer, and the value may drop if the bank is downgraded even though there may be no change to the underlying index.
Mike Brown of etfSA says the bank’s credit rating has no effect. “It's the asset that’s held in the ETN. ETFs are held in a trust, so the liability is 100% covered by physical holding in the underlying asset. With an ETN, it is sometimes not as easy to hold the underlying asset, like corn or wheat, and these may be covered by, for example, futures or forward markets. This makes ETNs slightly more risky, but whoever is issuing that note is issuing off of a balance sheet, so you have to look at the underlying balance sheet of the issuer.”
That is why ETFs are inherently more popular, says Brown.