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The Wackiest ETF Filing Yet

By
Ana Kostioukova
October 12, 2012
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The recent LocalShares filing for a city-specific ETF attracted my attention, but not in a good way.

I'm frequently amused by the wacky filings that pop up on my radar. Despite the fact that numerous funds have been closing due to a lack of assets, paperwork for new funds with hyper-specific focuses are filed with the Securities and Exchange Commission regularly.

For example, back in April, the KraneShares China Consumer Luxury ETF definitely caught my attention, with plans to bring to market a China consumer luxury ETF as well as a number of other hyper-focused China-centric funds.

That said, the recent filing from LocalShares takes the cake.

LocalShares, a Nashville, Tenn.-based money management firm, hopes to make its first appearance in the ETF industry with a Nashville-focused ETF that will track an index of companies headquartered in the firm's own home city.

I appreciate country music and have indulged in bourbon whiskey occasionally, but I find myself asking, What's the point? And how are they planning on making money?

If the past holds any lessons, it tells us that hyper-geographically specific ETFs aren't popular, at least not yet.

In 2009, Geary Advisors launched the first state-based ETFs, the Oklahoma ETF (NYSEArca: OOK) and the Texas Large Companies ETF (NYSEArca: TXF). The idea was unique, but both funds liquidated shortly afterward due to a lack of investor interest.

Companies often register ETFs with niche exposures under the belief that if they are first to market, they won't be pushed out by industry leaders such as State Street Global Advisors and BlackRock once those big players come around to launching similar portfolios.

However, what these companies often lack is impeccable timing. Firms must launch a product that's in high demand before a well-established fund provider catches on. Unsurprisingly, perfect timing is, more often than not, difficult to come by and these funds eventually liquidate.

Yet I do appreciate the 14 single-country equity ETFs that Global X registered with the SEC this summer.

These types of ETFs make it easy to invest in otherwise-unreachable markets, such as in Kazakhstan and Sri Lanka. Whether they make any money is a different story, but the offering will only be a boon to investors.

Given such history and daunting odds, LocalShares' registration for a Nashville-focused ETF is nonsensical.

The number of publicly traded companies that are headquartered in Nashville and adjacent counties, by my count, is less than 40. That number is halved when the size and liquidity restrictions that LocalShares is imposing are applied.

Below is my compilation of companies that would make it into the LocalShares Nashville ETF.

 

ETF DAILY DATA

Massive inflows into U.S. equity funds on Monday, Dec. 22, propelled total ETF assets to a new record.

'SPY' raked in more than $12 billion Monday, Dec. 22, pacing State Street's issuer-leading inflows on the day, as total U.S.-listed ETF assets jumped to $2.005 trillion.

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