Exchange Traded Notes (ETNs) are often issued to give buyers exposure to an index that cannot be easily constructed from liquid securities. (If an index can be constructed from liquid securities it is more common for sponsors to offer a tracking mutual fund or Exchange Traded Fund.)
Sometimes sponsors will offer an ETN and its inverse in pairs. For example:
- UBS ETRACS - ProShares Daily 3x Long Crude ETN (NYSE: WTIU)
- UBS ETRACS - ProShares Daily 3x Inverse Crude ETN (NYSE: WTID)
To first order, these ETN pairs offset each other. This is a benefit to the sponsor, since open interest in one is a free hedge to the other. It is also a benefit to buyers, because without the inverse ETN someone who wanted to hedge the other direction would have to pay borrow costs to sell the other one short. (Which is something that even the most sophisticated investor can't do in, say, an IRA.)
Given the benefits I see, there must be some cost or obstacle I don't see to issuing ETNs in pairs because it is relatively uncommon. So what are reasons that ETNs are not more often – or always – issued in pairs?