Can You Have Your $CAKE and Get Rich Too?

Cheesecake Factory (CAKE) is one of the more-memorable stock tickers out there. Same goes for Southwest Airlines (LUV), Sealy (ZZ) and Papa John’s International (PZZA).

But do creative stock tickers help their shares tick higher?

A recent Wall Street Journal article, citing a study from the Journal of Financial Markets, says they do.

Investors had the chance to make a whole lot of dough in PZZA. which gained 53.2% in 2016!

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:

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.

Using some of the metrics I outlined above, CARZ hasn’t garnered much interest from investors. It has just $22.4 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.

Best,
Grant Wasylik

Originally from Pennsylvania, Grant graduated from Juniata College with an economics major and accounting minor. Since graduation, Grant has worked in the investment industry for almost two decades by serving in various roles … Prior to coming to…