The issuers of exchange-traded funds (ETFs) are increasingly naming their newly launched funds with easy-to-remember ticker symbols. The main reason for picking more clever names – which are also immediately associated with the type of the ETF industry – is to distinguish from the thousands of other boring and meaningless tongue-twisters and difficult-to-remember tickers to attract the growing group of the so-called Robinhood traders.
Numerous studies have shown that cleverly picked stock trading symbols tend to outperform other stocks in their industries, at least during the initial trading period.
Retail investors tend to remember sticky names and associate them with creativity and a positive attitude toward the stock regardless of the company’s actual performance, market performance, and near-term prospects.
This has never been more topical than today, when the Robinhood factor has become a force to be reckoned with, despite the view of some analysts that most retail Robinhood investors are inexperienced and uninformed stock gamblers.
The Robinhood factor can no longer be ignored in the stock market with a growing trading crowd who influence the trading volume and the price of the stocks they heavily trade.
Many Americans opened their first online trading accounts during the pandemic, using part of their stimulus checks to trade stocks, software and data aggregation company Envestnet Yodlee told CNBC.
The millennial favorite Robinhood trading app has gained further popularity this year, and ETFs industry experts believe that a catchy name for an ETF nowadays could be a success with new traders and investors as one of the main factors in launching a successful new fund.
Sticky names could be the new naming game for ETFs, according to industry experts. For example, the biggest solar industry ETF in the U.S. right now trades under the ticker symbol TAN, while another solar industry-focused ETF, VanEck Vectors Solar Energy’s fund with the boring non-telling ticker KWT, was discontinued three years ago, Bloomberg data shows.
The funds were similar in times of launch, holdings, and fees, yet TAN became a success, while the other was killed off.
“It had to be the ticker,” Todd Rosenbluth, director of ETF research at CFRA Research, told Bloomberg.
Of course, tickers alone cannot guarantee success, but there is a growing awareness among industry professionals that catchy names could draw more investments into funds—and most of those investors would be the Robinhood kind of investors.
There hasn’t been a ton of studies on ETF names, but there is a lot of research into the naming of individual stocks and their market performance.
One study from the Rutgers School of Business-Camden showed last year that investors are easily confused by similar tickers. The study found that up to 25 percent of companies with similar tickers and/or names exhibit co-movements in turnover, which the authors attributed to investor confusion.
“For investors, our message is simple, ‘Always double-check before you trade,’’” the paper concludes.
Stocks with catchy tickers outperformed the market between 2006 and 2018, according to a 2019 study of the Department of Economics at Pomona College, which was a follow-up to a similar study from 2009 that had found that a portfolio of stocks with clever tickers beat the market by a substantial margin between 1984 and 2005.
“For example, WOOF, the ticker for VCA Antech, which operates a network of animal hospitals and diagnostic laboratories, is a lot more amusing and memorable than something boring like VCAA or VCAN,” Economics Professor Gary Smith said.
Clever tickers may make stocks more recognizable to the general public the study found.
This may be equally true for ETFs.
ETF.com has a Best New ETF Ticker category in its annual awards. The winner for 2019, announced in April 2020, was Roundhill BITKRAFT Esports & Digital Entertainment ETF, or NERD, while finalists included Procure Space ETF (UFO), and AdvisorShares Pure Cannabis ETF (YOLO).
With a growing number of millennial retail investors trading on their feelings instead of fundamentals, ETF issuers may spend more time on brainstorming for cool names for their new products.
By Tsvetana Paraskova for Oilprice.com
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