ETPs

This financial product is called an ETP.

To cover ETPs in full, I would need to write a whole other book. In this series, which aims to give you greater knowledge and awareness of financial markets and how to manage your savings, I will explain only the main aspects of ETPs, referring you to more in-depth reading (there are many books in all languages) for a more complete knowledge of this valuable tool. Even though, on a practical level, the notions you find in this series are sufficient, further reading will deepen your understanding.

I just want to specify, for those who do not know English well, that ETPs is the plural of ETP. The same goes for all the other acronyms you will see below.

So, what is an ETP?

An ETP, Exchange Traded Product, is a type of investment that is characterised by passively replicating a reference benchmark and being listed in real time on a regulated market. The benchmark is a reference parameter, generally a stock exchange index (e.g., the FTSE MIB, the DAX or the Dow Jones).

That ETPs adopt passive strategies means that they aim to replicate the performance of the reference benchmark, not to outperform it like an investment fund. For example, an ETP on the Nikkei index replicates the performance of the Japanese stock index. Hence, the risk-return profile will also be in line with that of the benchmark.

ETPs include:

• ETFs, Exchange Traded Funds, are special investment funds that passively replicate a reference benchmark.
• ETNs, Exchange Traded Notes, are financial instruments with no maturity date that are issued by banks or other financial institutions against direct investments by the issuer in the reference benchmark, which generally consists of an index (equity, bond or monetary), or in derivative contracts on the same benchmark.

A particular type of ETN is the ETC, Exchange Traded Commodity, which is characterised by investing in, and replicating the performance of, one or more commodities.

In the next sections, you will see ETFs and ETCs explained in a little more detail, albeit in a simple way, and how to use them to create your ideal investment portfolio.