But do creative stock tickers help boost their performance? A recent Wall Street Journal article, citing a study from the Journal of Financial Markets, says they do.
According to the article titled LUV Your Stock: Study Shows That Ticker Symbols Matter:
The researchers asked undergraduate business students at the University of Central Florida to rate three-letter ticker symbols from 1,959 publicly traded companies based on how much they liked them and how easy they were to pronounce.
The paper found that valuations of shares with symbols the students liked, including ACE, BRO and LUV, were about 1.3 percentage points higher than valuations of those with handles rated less favorably, like CFW, JWN and ZQK. Symbols were from a sample period from 1982 to 2011.
The UCF study reveals an intriguing conclusion …
Stocks benefit from the “likability” and “pronounceability” of their ticker symbols.
JWN, for example, represents the initials of the department store chain’s founder John W. Nordstrom. Regardless of the fact that it would take more than a catchy ticker to make big, brick-and-mortar retailers like Nordstrom look appealing right now, the company might have benefited some from a more-relatable ticker like SALE. (SALE belongs to RetailMeNot.com, which went public in 2013.)
Related story: Spend Less Time Shopping and More Time Investing
Xuejing Xing, co-author of the study and a finance professor at the University of Alabama in Huntsville, said:
Ticker symbols convey little information about a company, which makes it easier to isolate their effect on stock prices from other variables such as future cash flows and risk.
Ticker symbols, too, are usually only remotely related to their company names, so judgment of a symbol likely isn’t influenced by knowledge of a company’s financial success, failure or any other mitigating factors that could affect perception.
Shouldn’t a similar story apply to ETFs, as well?
More specifically, do the most eye-catching, memorable and clever ETF tickers attract more assets?
I’ve written about several ETFs with catchy tickers in recent months: SHE (SPDR SSGA Gender Diversity Index ETF), PRNT (The 3D Printing ETF), JETS (U.S. Global Jets ETF) and HACK(PureFunds ISE Cyber Security ETF).
SHE has $275 million in assets … PRNT has $12 million in assets (just launched three months ago) … JETS has $45 million in assets … and HACK has $750 million in assets.
Not too shabby, asset-wise.
But what’s in a (ticker) name?
I decided to conduct my own mini-study. (Please keep in mind I don’t have access to the free resources of college professors.)
With around 2,000 ETFs to choose from, here’s the shortlist I came up with:
|Source: Morningstar and YCHARTS Click image for a larger view.|
It’s common practice in the ETF industry …
If you’re an ETF issuer: find a hot area of the market, be the first mover and create a catchy ticker (at least an ETF ticker that’s easily associated with what the ETF represents) and you may strike gold.
Now, if you’re an ETF investor: a popular, first-to-market and memorable ticker should help increase trading volume.
But as an investor, you can’t stop there. You need to do more homework. For example …
What’s your objective? Review the underlying index and its methodology.
How has the ETF performed? Check the tracking error. (That is, the difference between the returns of the fund and the target index it tracks.) And compare returns to comparable funds.
What’s it going to cost you? Locate the expense ratio.
Are you in good hands with the ETF issuer? Read up on the ETF provider’s reputation and track record.
Take the First Trust NASDAQ Global Auto Index ETF. Its ticker, CARZ, might give it some added shine. But you still need to look under the hood.
|CARZ is only up 12% since this ETF launched five years ago.|
Using some of the metrics I outlined above, CARZ hasn’t garnered much interest from investors. It has just $22 million in assets and appears to be thinly traded (with a wide bid/ask spread of about 0.4%).
While CARZ does look cheap for value-hunters, with its price-to-earnings ratio of 7.5, you might do better picking out some of your favorite individual stocks from inside this ETF’s list of 30 big-name global car-makers.
In the end, a catchy stock or ETF ticker matters some. But it matters more to the companies or the ETF issuers than to investors who want to put real money to work.
This article is brought to you courtesy of Uncommon Wisdom Daily.
Grant Wasylik is an analyst and editor for Uncommon Wisdom Daily — a division of Weiss Research.
Before joining the investment newsletter business, Grant worked as a portfolio manager, lead research analyst and head trader for a billion-dollar wealth management firm for 10 years. He also spent a few years working in a specialized risk-trading department at Charles Schwab — where he was the first-ever, external hire into this elite department. In his first stint in the securities business (after passing Series 7, 64 and 24 exams), Grant ran a margin department and supervised a trade desk for a discount brokerage firm.
Prior to coming to Uncommon Wisdom Daily, Grant was co-editor and chief analyst of The Palm Beach Letter for two years. This monthly publication — with over 70,000 subscribers — focused on safe, income-oriented investments.
Due to his vast investment experience, Grant has a deep contact list comprised of 300-plus mutual fund, ETF, index, hedge fund and other top-notch financial professionals. In addition, he receives special invitations to — and attends — several of the world’s top investment conferences each year.