LocalShares, a Nashville, Tenn.-based money management firm looking to enter the ETF market for the first time, filed paperwork with U.S. regulators to market an ETF that would invest solely on companies headquartered in Nashville.
The LocalShares Nashville ETF would replicate a proprietary index that tracks the performance of Nashville companies that have a minimum of $100 million in market capitalization and that have seen at least 50,000 shares in average daily trading volume during the prior three months.
The index is weighted “on several publicly available factors, including data related to earnings, sales, profitability, price and yield of the components,” the company said in the filing. The ETF is expected to have annual fees totaling 0.49 percent.
This type of state-geography-based strategy isn’t new in the ETF market, though it is definitely rare. Back in the fall of 2009, Geary Advisors launched the market’s first state-based ETF, the Oklahoma ETF (NYSEArca: OOK), and quickly followed it with a second fund: the Texas Large Companies ETF (NYSEArca: TXF).
Geary’s ETFs were the first ETFs to target the individual state economies, but both funds were shuttered less than a year later after failing to attract enough assets.
Interestingly, LocalShares tops its list of risk warnings to investor by pointing out that this nondiversified strategy is a “new fund,” and as such it might not attract enough assets to keep tracking error to a minimum or to even reach an “economically viable size.” The firm, it seems, has listed the possibility of liquidation as the biggest risk associated with the fund.
What’s more, LocalShares goes on to say in the filing that the fund’s distributor doesn’t keep a secondary market in the shares, and the fund’s advisor “has never operated an investment company such as the fund.”
LocalShares is an investment trust headquartered in Nashville, Tenn.
While the firm will serve as investment advisor to the ETF, Decker Wealth Management is listed in the prospectus as subadvisor to the fund.
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