What\'s in A Name?
http://dervishcom.blogspot.com/2011/11/whats-in-name.html
Shortly after its introduction in 2001 by Goldman Sachs, the term BRIC -- short for Brazil, Russia, India and China -- was on investors' lips the world over. Since then investment banks and money managers have been searching for the next hot investment acronym.
The latest entry: CARBS. In a recent report called “CARBS Make You Strong,“ Citigroup argues that Canada, Australia, Russia, Brazil and South Africa should be lumped together because their markets and currencies are particularly sensitive to changes in commodity prices.
Thus CARBS has joined MINTS (Malaysia, Indonesia, New Zealand, Thailand and Singapore), CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) and MIST (Mexico, Indonesia, South Korea and Turkey) among cleverly named country groupings. The concept has even spread to the developed markets: On Tuesday, Russ Koesterich, chief investment strategist at iShares, made the case for CASSH -- Canada, Australia, Singapore, Switzerland and Hong Kong.
Academic research has shown that catchy monikers help sell investments. A 2006 study found that stocks with ticker symbols that conjure common words -- such as LUV, BID and RIG -- outperformed others by about 8.5 percentage points on their first day of trading from 1990 through 2004. The reason: When dealing with complicated subjects -- like investing -- people seem to prefer shortcuts that simplify matters.
“It creates a mental tag that people recall and then they take action,“ says Richard Peterson, a psychiatrist and director at research firm MarketPsych Data.
Many of the new acronyms are rooted in the attempt to simplify emerging-market investing in the same way BRICs did. But BRICs simply gathered the four largest developing nations; the new acronyms use everything from demographics to population size to debt levels to determine inclusion.
There isn't yet a single product that can help you make a CARBS investment. But firms have created others around acronyms and themes. Investors, for instance, can buy BRIC-based investments like the iShares MSCI BRIC exchange-traded fund, the Guggenheim BRIC ETF or the SPDR S&P BRIC 40 ETF. Goldman Sachs Asset Management launched its N-11 fund (which includes Bangladesh, Egypt and Indonesia, among others) in February, while HSBC announced the launch of a European CIVETS fund in May.
Acronyms may be catchy, says Richard Bernstein, chief executive of Richard Bernstein Advisors, “but anytime you hear one, you have to wonder what part of the story hasn't been told.“
A better bet, says Mark Luschini, chief investment strategist at Janney Montgomery Scott, is to stick with a broad emerging-market allocation, like the Vanguard MSCI Emerging Markets ETF or the iShares MSCI Emerging Markets Index ETF. “It's important for clients to be exposed to emerging markets,“ Mr. Luschini says. “But for individuals, I prefer being out at the 10,000-foot level.“
Another option: Buy equal-dollar amounts of the 18 individual emerging-market ETFs, says Michael Dunn, chief research officer at TruColorCapital Management, thereby avoiding the BRIC-heavy allocations of the MSCI indexes. (The Czech Republic, Hungary and Morocco don't have dedicated ETFs.)
“The BRICs have been recognized,“ Mr. Dunn says. “But the best performance over the next 10 years will be the next level down.“
The latest entry: CARBS. In a recent report called “CARBS Make You Strong,“ Citigroup argues that Canada, Australia, Russia, Brazil and South Africa should be lumped together because their markets and currencies are particularly sensitive to changes in commodity prices.
Thus CARBS has joined MINTS (Malaysia, Indonesia, New Zealand, Thailand and Singapore), CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) and MIST (Mexico, Indonesia, South Korea and Turkey) among cleverly named country groupings. The concept has even spread to the developed markets: On Tuesday, Russ Koesterich, chief investment strategist at iShares, made the case for CASSH -- Canada, Australia, Singapore, Switzerland and Hong Kong.
Academic research has shown that catchy monikers help sell investments. A 2006 study found that stocks with ticker symbols that conjure common words -- such as LUV, BID and RIG -- outperformed others by about 8.5 percentage points on their first day of trading from 1990 through 2004. The reason: When dealing with complicated subjects -- like investing -- people seem to prefer shortcuts that simplify matters.
“It creates a mental tag that people recall and then they take action,“ says Richard Peterson, a psychiatrist and director at research firm MarketPsych Data.
Many of the new acronyms are rooted in the attempt to simplify emerging-market investing in the same way BRICs did. But BRICs simply gathered the four largest developing nations; the new acronyms use everything from demographics to population size to debt levels to determine inclusion.
There isn't yet a single product that can help you make a CARBS investment. But firms have created others around acronyms and themes. Investors, for instance, can buy BRIC-based investments like the iShares MSCI BRIC exchange-traded fund, the Guggenheim BRIC ETF or the SPDR S&P BRIC 40 ETF. Goldman Sachs Asset Management launched its N-11 fund (which includes Bangladesh, Egypt and Indonesia, among others) in February, while HSBC announced the launch of a European CIVETS fund in May.
Acronyms may be catchy, says Richard Bernstein, chief executive of Richard Bernstein Advisors, “but anytime you hear one, you have to wonder what part of the story hasn't been told.“
A better bet, says Mark Luschini, chief investment strategist at Janney Montgomery Scott, is to stick with a broad emerging-market allocation, like the Vanguard MSCI Emerging Markets ETF or the iShares MSCI Emerging Markets Index ETF. “It's important for clients to be exposed to emerging markets,“ Mr. Luschini says. “But for individuals, I prefer being out at the 10,000-foot level.“
Another option: Buy equal-dollar amounts of the 18 individual emerging-market ETFs, says Michael Dunn, chief research officer at TruColorCapital Management, thereby avoiding the BRIC-heavy allocations of the MSCI indexes. (The Czech Republic, Hungary and Morocco don't have dedicated ETFs.)
“The BRICs have been recognized,“ Mr. Dunn says. “But the best performance over the next 10 years will be the next level down.“
