When it comes to exchange traded funds (ETFs), you can’t always go by the name. But once you know the lingo, you can get a few clues as to what’s inside.
Here are a few tips, courtesy of Karen Damato for The Wall Street Journal:
- An ETF’s name typically includes most of the index name, which can encompass two or more proper names or sets of initials representing companies or organizations that have a hand in the data. [ETFs: A Portfolio Diversifier.]
- Another method is that the initials are shorthand to summarize index characteristics. For example, iShares MSCI USA ESG Select Social Index (NYSEArca: KLD) – “social” is a clue that this fund has a socially responsible bent.
Not all ETFs have names that roll off the tongue, so it’s becoming increasingly common for investors to name ETFs simply by their tickers, which can often be clues, too. You can guess that MOO might have something to do with commodities or that GLD must deal with gold. [Build An ETF Portfolio for Free.]
But don’t rely on the names, because many ETFs might have exposure to sectors or countries that the name doesn’t indicate. For example, many infrastructure ETFs have high levels of utility exposure and single-country funds can be heavily weighted in financials or commodities.
This information can easily be located on the ETF Resume page for any fund.
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.