When the entire mutual fund industry is up in arms about a new form of ETF, should investors take note? You bet they should.

There's an interesting article over on SeekingAlpha by HardAssetsInvestor. The article focuses on the Exchange Traded Note product, something I've written about previously. The ETN is similar to an ETF in that it's a fund that trades like a stock. Unlike ETFs though, the ETN is not backed by the underlying assets. Rather, it's a zero-coupon note (essentially, a bond) that's backed by its underwriters. So, it throws an added layer of default risk into the whole investment game.

Where things get even more interesting is the tax treatment of the ETN product. Says HardAssetInvestor's Brad Zigler, "No tax consequence befalls the noteholder until the security is liquidated or matures. Taxes during the holding period? Zip. Nada. Bupkis. That beats the heck out of the tax treatment of mutual funds, too, which distribute income and capital gains." Unlike ETFs investing in commodities which are treated with a complicated tax structure on the futures the funds invest in, ETNs don't pass these taxes through to investors.

It's this tax difference that has the big mutual fund industry up in arms. According to the article cited above, "The Investment Company Institute [ICI], an industry trade group, called on Congress and the Internal Revenue Service to step in and mitigate the "unwarranted, unintended and unfair" tax advantage enjoyed by ETNs."

Things are going to get interesting and at the least, investors in commodity ETNs like DJP, RJI or GSP can benefit from the sparring match between ETN firms and the large mutual funds families.

Zack Miller is the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.