One of the most confusing things about investing are the acronyms. These abbreviations seem like a secret code to the uninitiated, obscuring understanding. But just as certain acronyms can be indispensable in daily life (RSVP, for example), so too are a few key short-forms in the world of investing.
Take ETF, for example. ETF stands for exchange-traded fund, which is basically a mutual fund that trades on the stock exchange. Why should you care? Well, if you’re looking for a low-cost way to invest that gives you instant diversification even for modest amounts of money, ETF might be one acronym worth remembering.
Those comfortable investing on their own can build a portfolio quite easily with ETFs by opening an account with a discount broker. Alternatively, if you’re investing with the help of a Portfolio Manager (PM) or digital advice platform (ROBO), you will almost certainly see these vehicles used in your portfolio. Even certain mutual funds invest in ETFs. Take a closer look at your mutual fund reporting and you may discover your fund manager is increasingly using ETFs to build you a better portfolio.
Having trouble understanding your statement or fund reports? Sometimes space restrictions don’t permit the full name of an ETF to appear, so an acronym, or ticker is used. A ticker is an abbreviation that uniquely identifies each stock or ETF that trades on the stock exchange.
Usually, the acronym or ticker assigned to an ETF will provide a strong clue as to what this ETF is invested in. The simplest ETFs are designed to mirror the return of a selected stock market index and provide a way for you to invest in it. The S&P500, for example, is arguably the best-known stock market index in the world, and people watch it daily to gauge “how the market is doing”. S&P just stands for Standard and Poor, the company that invented this stock market index back in 1957. “500” represents the basket of 500 large US stocks that make up the index.
But you can’t invest directly in an index. So, in 1993, the first American ETF was born, the SPDR S&P 500 Trust ETF, which trades under the unique ticker SPY and is today the largest ETF in the world, with more than $260 Billion of assets under management. The task of the company that created this ETF is to deliver to you a return that closely tracks that of the S&P500 index.
I’d be remiss if I didn’t mention that the first ETF was actually invented in Canada. The first exchange traded fund – the Toronto 35 Index Participation units (TIPs) – was created and offered to the public in March of 1990. It replicated the return of a basket of 35 Canadian companies, and for the first time, made it possible to easily invest in these companies without having to buy shares in each. A variation of this ETF still exists today and trades on the Toronto Stock Exchange (TSX), although more names have been added to the basket and the ticker has changed. This ETF, XIU is the largest ETF in Canada, with $8.6B in assets under management. (The I and the U in the ticker stand for Index Units).
In the almost 30 years since the first ETF was invented, the industry has grown considerably, representing more than $5 Trillion of investor assets globally across more than 5000 ETFs. In Canada alone, there are 33 ETF providers offering a total of 650 ETFs totalling $157 Billion in investor assets under management.
Today it’s possible to easily invest in virtually any region of the world in any asset class the investor desires. No longer limited to providing exposure to stock market index returns, the exchange traded fund can now be used to provide access to other assets as well including fixed income, currencies and commodities.
Amazingly, each ETF must have its own ticker, testing the creativity of the manufacturer (sometimes called the issuer or the sponsor) to come up with an acronym people can remember. Some are straight-forward. BND, for example invests in global bonds. GLD invests in gold bullion. INDA invests in the Indian stock market. MINT invests in short-term money market instruments. Other tickers are not so obvious, however, as the number and type of ETFs available in the marketplace from different issuers keeps growing.
Some naming conventions have arisen to help investors identify which company has issued the ETF. In Canada, for example, two issuers dominate the marketplace: iShares (a division of BlackRock) and BMO Asset Management (a division of the Bank of Montreal). iShares tickers for ETFs issued in Canada all start with X. BMO’s Canadian ETF tickers all start with Z. The next 2 or 3 letters usually tell you something about what the ETF invests in. XSP is iShares’ S&P500 index ETF. ZSP is BMO’s version. Other Canadian ETF providers start their ETF tickers with other letters: Vanguard ETFs start with a V. Horizons ETFs start with an H, etc.
While industry professionals who use ETFs frequently in portfolio construction may refer to these tickers quite commonly, there’s no need for investors to do so. If you see an acronym or ticker you are not familiar with, a quick internet search for “XYZ ETF”, for example, will take you to detailed information on that ETF, including its full name, who issued it, and what country, asset class or unique strategy it is designed to deliver. Information is available in fact sheet form from the issuer itself, of course, and there are also a number of third-party websites that provide information, rankings and articles.
For unbiased information on the Canadian ETF industry, including statistics, articles and educational resources I would highly recommend you bookmark the website of the Canadian ETF Association, CETFA at http://www.cetfa.ca/index.html