Despite the failure of state
and the demise of numerous others with sound strategies,
LocalShares, an ETF start-up, has rolled out the first ETF to
group companies headquartered in a city.
Nashville Area ETF (
) is the brainchild of three Nashville business owners: Elizabeth
Seigenthaler Courtney, CEO of Seigenthaler Public Relations;
William Decker, CEO of Decker Wealth Management; and Michael
Shmerling, chairman of XMi Holdings.
The 24-stock portfolio includes 10 health-care companies,
three health-care real estate investment trusts and an assortment
of retailers, industrials and financials. The best-known holdings
areHCA Holdings (
), the largest publicly traded hospital chain;Cracker Barrel (
), a restaurant chain; andDollar General (
), a discount retailer.
"Business-oriented cities create an ecosystem that's conducive
to the success of the companies located there, such as tax
structure," said Decker.
In a press release, LocalShares boasted that Tennessee's
second-largest city offers low taxes, a strategic location and a
state where people have the right to work.
It enjoyed the fastest job growth in 2012, and maintains a
high quality of life for a productive and energized workforce,
LocalShares wrote. And LocalShares believes that the area's 18
colleges and universities offer a rich environment of research
Known as America's health-care hub, it is home to more than
300 health-care companies, according to Council Capital, a
Nashville-based business development firm.
Forbes ranked Nashville and the surrounding area No. 5 for the
best places for business and careers. Tennessee's state corporate
tax rate of 6.5% ranks 11th lowest among all states.
But Nashville's combined sales-tax rate of 9.25% (7.5% for
state and 2.25% local) ranks seventh highest in the country,
according to the Tax Foundation.
Despite the positives, several factors seem aligned against
this fund. Here are four:
1. Institutional investors don't place much weight on company
headquarters when considering whether to buy and sell.
"We've never used an ETF or a company's headquarters location
as a factor in making investment decisions and we're not about to
start," Ron DeLegge, editor of
, said in an email. "While a local ETF might be good for
companies within the index to increase investment and raise their
profile, whether it will turn out to be a good investment for ETF
shareholders is a big unknown."
2.If Nashville's business friendliness had a big impact
on corporate success, more companies would be based
3. NASH lacks the diversification that ETF investors
NASH holds only 24 stocks, 13 of which are health-care
related. It could be considered an industry bet as much as a
"A natural disaster (albeit unlikely) could seriously ding a
narrow state-based ETF," Simon Maierhofer, founder of
4. Investors have no interest in state ETFs, so why would they
want one that dices geography even smaller?
For example, Oklahoma-based Geary Advisors closed its two
state ETFs --Texas Large Companies ETF (TXF) and theOklahoma ETF
(OOK) -- in 2010 after less than a year on the market and left
the ETF industry altogether because those funds failed to attract