The Art and Science of Tickers

With the recent news that the Select SPDR Trust is suing Invesco Powershares due to trademark infringement relating to tickers, a unique area of product development and marketing was highlighted in the ETF world: tickers.(Quick primer: Invesco Powershares launched small cap S&P sector ETFs and created tickers for them that simply added an “S” to the existing large cap Select SPDR ETF tickers, thereby leveraging the current sector ETF “ownership” of the Select SPDR ETF family. For more detail check out Invesco Powershares sued by Sector SPDRs)

The exchange traded nature of ETFs often make their ticker symbols the primary point of reference for the fund. One easy analogy is to think of the ticker symbol of an ETF being like the jersey number of your favorite athlete. Michael Jordan is known for 23 in basketball and Brett Favre owns the number 4 in football. These numbers or “tickers” are shortcuts that represent the product and are often used in lieu of their full names. Accordingly, many ETF providers work hard at ticker creation. Ideally a ticker symbol should be relatable to the asset class being tracked and easy to remember. Being relatable and memorable create the foundation for an ETF ticker to “own” the space. In the ETF world this means the ETF is the most often referenced product to access a particular asset class or investment strategy. That “ownership” factor increases the volume and ultimately the AUM of the fund. Quite simply, tickers have an impact on the success of the ETF and there is an art and science used to create these ETF nicknames.

THE SCIENCE BEHIND TICKERS

There is a scientific approach to developing tickers. One approach favored by some sponsors is to create an ETF family name convention whereby all ETF tickers at the sponsor start with a certain letter and then have a variation afterward. An example of this would be Vanguard ETFs which have tickers that all begin with the letter “V” and then use a few other letters to customize the fund based off the underlying asset class. This straightforward approach works well for ETF families with a loyal following or that have cornered a specific area of the ETF market. The advantage of this approach is that it is an orderly and easy way to organize the product line. The disadvantage is that these tickers are often not very memorable or relatable initially, especially to investors not familiar with the ETF family.

A different scientific approach is to simply create a ticker symbol that is visually similar to the underlying asset class being tracked. “GLD” is perhaps the poster child for this scientific approach as it tracks the price of Gold. It is easily relatable and memorable — two ingredients for success. The downside of this approach is that there are a limited amount of ticker combinations available to select from and not all underlying asset classes or investment strategies can be easily encapsulated in several letters.

THE ART BEHIND TICKERS

The art of ticker creation looks outside the box and creates tickers that use clever associations to the underlying asset class or leverage off of existing competitive ETF ticker conventions. Clever tickers abound in the ETF world and are often very memorable but may not be as relatable initially. However once clever tickers are relatable, the become likely candidates to “own” a space. A few examples of this approach are the tickers “MOO” used by Van Eck for their Global Agriculture ETF or “FAN” by First Trust and their Global Wind ETF. Both hit the mark as clever plays on the underlying asset class the ETF tracks and are extremely memorable. Once they were related to their underlying asset class, they became owners of their respective spaces. A disadvantage of this approach however is that the sponsor begins to accumulate a variety of ETF tickers that don’t have any relation to each other. This can translate into ETF momentum being more focused by fund than by family.

Another approach to the art of ticker creation is to leverage established ETF ticker conventions in an asset class. Invesco Powershares is now being sued for this approach but other sponsors have been doing this for years. Just take a look at the largest Emerging Market ETF “EEM,” and you will see several variations of funds form other sponsors geared to compete or compliment this fund — most recently Emerging Global Advisors launch of “EEG” or ProShares launch of “EET” and “EEV.” Launching ETFs that leverage competitive tickers can create instant “ownership” for new ETFs, while still allowing for product differentiation. This approach does the investor a favor by creating suites of tickers from a variety of sponsors that focus transparently on an area of the market. Now, it appears that one disadvantage of this method is that firms may take a sponsor to court in order to protect any association to their tickers.

PUZZLEMENT

What is puzzling about the legal action taken by Select SPDRs is the fact that ticker symbols are often held or protected through stock exchanges for certain parties. Apparently in the case of Select SPDRs, they had not taken the steps to reserve these particular tickers for a future product line. That effort would have protected them from the alleged slight by Invesco Powershares. Oddly enough, the launch of the small cap S&P sectors and their related tickers not only benefits Invesco Powershares but also helps the Select SPDRs product line. In fact, one wonders if Select SPDRs Trust is using this legal action to garner publicity to promote their product line.

Whether a proponent of  the art or science of ticker creation, there is no doubt  that tickers are a unique and important aspect of the ETF world. It will be interesting to watch the legal process surrounding ETF tickers play out in light of all the new ETFs and related tickers lining up to launch.