As for new investments, though, the firm's thinking has changed. "We're not sure if we will buy anything new, even as far as adding to existing ETNs we use," Holtzman added, and that is notable, since the ETNs being used now by Legend have not raised any red flags. Furthermore, Holtzman said that there is nothing on the ETF side that is an exact replica of styles for which Legend has used ETNs, but still, the firm will now look more to ETFs for similar exposures.
One way market watchers may be able to gauge if a considerable dollar shift is taking place between similar ETNs and ETFs will be to watch future asset movement in Barclays Global Investors' commodities ETF and ETN, which are pegged to the same index: the iShares S&P GSCI Commodity Indexed Trust (NYSEArca: GSG) and the iPath S&P GSCI Total Return Index ETN (NYSEArca: GSP).
At Van Eck Global, which is the distributor for Morgan Stanley-backed Market Vector ETNs, redemptions have risen recently, but the company can't trace it directly to the credit environment. In its Chinese Renminbi/USD ETN (NYSEArca: CNY), redemptions have been a little higher than normal, but there is not enough information at this point to draw any direct connection, said ETF director Adam Phillips.
The Double Short Euro ETN (NYSEArca: DRR) has also seen higher redemptions, but given the recent movement back and forth in the U.S. dollar, it is impossible at this point to pinpoint a reason for higher-than-normal redemption activity vis-à-vis either currency or credit concerns.
Checking Under The Hood
Incoming calls from Market Vector ETN shareholders have also increased, but in those cases, it is investors who were not aware of the credit side of ETNs, or just want to explore the issue in more detail now. However, Phillips stressed that Van Eck has always been up front about the differences between ETFs and ETNs.
"Nothing really changes for us as distributor, other than fielding more calls than usual given the credit environment, which is expected. But with the way we market ETNs, we have always schooled our marketers to talk about the structural side of the investments," Phillips said.
Does this mean the ETN market, growing quickly but running headlong into the worst of the credit crisis, could stop short of meeting the critical mass and market acceptance needed for long-term survival?
Holtzman doesn't believe that will be the case, and PowerShares' Bond only believes the company is being logical by holding back on new ETNs for now.
"I think it will be a blip, but it might be a long blip," Holtzman said.