ETFs start to become a hot topic among investors, especially with beginners. With all its offers, benefits, and perks, it can be interesting to begin in its path. Still, as beginners, we can't deny the fact that it can be intimidating as well. One factor that makes it so is its complicated names and abbreviations.
While ETFs work simple and are understandable in simple ways, their names and abbreviations can be quite complicated. If you find it problematic like many of us do, read on.
In this article, you'll read thorough information about how to read ETF names and Abbreviations. This way, you'll get guided as you go on with your investment journey.
Let's get into it!
The numbers and letters mean something.
To start, you need to know that these abbreviations and numbers mean something. In short, it's not just randomly picked to make our lives complicated.
For instance, the ETF name with S&P 500 isn't just a mixture of letters and numbers.
The S&P refers to Standard & Poor's, and it's a leading index provider and data source of independent credit ratings. Further, the 500 refers to the 500 companies the index track.
Thus, it's essential to keep in mind that numbers and letters in ETF abbreviations mean something.
ETF Names have five components.
ETF Names are created to make it easier to understand each and distinguish one from the other. Thus, it's not something made up randomly.
In general, an ETF name comes from keywords that define the product’s most essential features.
Let's take a look at a specific example to understand better. For instance, below is a name of an ETF:
Xtrackers S&P 500 UCITS ETF 2C (GBP hedged)
I know it's quite long, but it contains five parts that define the said ETF. Here's a breakdown of this name:
- Xtrackers - Issuer
- S&P 500 - Index Name
- UCITS ETF - Regulatory Information
- 2C (GBP hedged) - Share Class Details
Now, let's get into each of these five components.
ETF Issuer
The first part of the name usually tells the provider of the said ETF. With the example above, the issuer is Xtrackers. ETF providers are generally subsidiaries of large banks or asset managers. In our example, Xtracker is the ETF brand of Deutsche Bank.
Basic Range
The provider's name may get tagged with a sub-brand. It shows that the ETF belongs to a sub-group in the provider's product range.
Look out for terms such as Core, as these products are usually cost-effective. Further, these generally base around key portfolio building blocks.
Index Name
The second component is the index the ETF tracks. For instance, the example above is the S&P 500, and it's one of the well-known index vendors like MSCI and FTSE.
Such vendors provide independent verification of the indices. Further, the license them to the ETF providers.
Like I said earlier, the index name may indicate the region and the number of stocks it tracks.
For instance, the EURO Stoxx 50 tracks the 50 largest companies in the Eurozone. For this reason, it would be ideal always to be mindful of the region.
Some names also have a suffix. It tells whether the index performance gets calculated before or after withholding taxes on dividends. Still, it has no direct impact on the ETF's performance.
Regulatory information
Another thing to note is the regulatory information since it's crucial for protection.
For instance, always look for UCITS in your ETF name. It means the ETF is subject to regulations designed to protect investors.
Further, the term ETF is also a classification. It distinguishes ETF from other exchange-traded products. Among these are ETCs or Exchange-traded Commodities and ETNs or Exchange-traded Notes.
Share class
At the end of the name, you may find cryptic abbreviations. Such things provide information on the share class.
ETFs often give several share classes. These things are variants of the fund which can differ by fees, trading currency, or income-distribution method.
Other information you may need to know
Below is other information that may come in handy should you ever see one in an ETF name.
Income
There are ETFs that payout and these are what we call 'distributing.’ On the other hand, some ETFs reinvest, and these are 'capitalizing' or 'accumulating.’
Distributing ETFs usually have one of the following abbreviations:
- D
- Dis
- Dist
Accumulating ETFs usually have one of the following abbreviations:
- C
- Acc
Currency
If a currency comes without the term "hedged,” this is usually a reference to the ETF’s trading currency.
Products are often offered in different currencies on the London Stock Exchange. Among these are GBP, EUR, and USD.
Domicile
Be wary of the terms 'Short' or '2x', as they can be Leveraged ETFs. Such ETFs are risky, enabling investors to multiply the indices’ movements by a factor of two or three.
Further, if you see 'Short' or 'Ultra-short' in a Bond ETF, it means something less risky. It means short maturity dates of bonds held in a particular fund.
Summary
At a glance, ETF names may seem like a jumble of words, letters, and numbers. Thus, it is often confusing, but you'll get the hang of it as you go on.
The best way to deal with it is to use the information in the name. It will guide you to a shortlist of suitable ETFs. Moreover, it will guide you to dig deeper in its profile, eventually letting you see the one suited for you.
It may take some time to get used to it, but it will all start to be easier once you're learning about it more.
Published: 02/18/2021