Get Out And Support Your Local ETF

September 05, 2013

Why shouldn’t locals get behind an ETF that’s focused on where they live?

It’s easy to write off the Nashville Area ETF (NASH) as a country bumpkin in a $1.5 trillion market.

Picture it as a new ETF stepping off the Greyhound bus with a suitcase in each hand, straw on its shoulders, staring up at the ETF giants covering every conceivable corner of the market. It’s wondering where it might fit in.

To back up, NASH launched while you were on summer vacation, offering improbable equity exposure to the businesses in the greater Nashville area.

Thought leaders in coastal financial centers and people everywhere probably thought “Why?” Why offer such narrow equity coverage? And why Nashville?

To the first question, I say, “Why not”?  ETFs already offer almost comically precise exposure across the investible universe, such as five-month VIX futures, long oil-short S&P, or Peru.

Sure, these precise ETFs have an investment thesis to back them up, however narrow it may be, which brings me to the second question—why Nashville—to which I also say “why not”.

I happen to live in San Francisco, and I’d buy a San Francisco ETF if one existed. Why? Because every day I see growth and opportunity—a bustling city filled with construction cranes and start-ups. So I have a view on which way it’s heading.

And I’d likely have an opinion about the names in the basket and how well they align with my homegrown investment thesis.

So yes, the niche here is hopelessly retail. I concede and perhaps even enjoy the notion that institutions, banks and hedge funds probably have little interest in Nashville, a metro area of 1.6 million people.

And of course, neither do I.

My naïve hope is simply that NASH would be owned mostly by people who live and work in the Nashville area or travel there frequently—people with a first-hand view, in other words.

I admit this sounds more Norman Rockwell than Warren Buffet. After all, how much NASH should Nashville locals really hold in their portfolios?

Individuals who live and work in the community already have economic exposure to area firms. Maybe they work for Cracker Barrel, or own a small business frequented by employees of Dollar General—two firms that loom large in NASH. These folks probably shouldn’t have a huge chunk of their savings tied to companies that impact their income.

Limited participation by a limited number of people doubtless creates a severe uphill battle for NASH. All new ETFs need a minimum of investor interest to keep them going, and NASH’s narrow focus certainly makes that extra hard.

How’s it doing so far? I see a few green shoots. The fund has traded every day since launch, spreads average 27 basis points so far, and the order book is more than skin deep.

While that’s a far cry from mega-ETFs like the SPDR S&P 500 ETF (SPY | A99) and the iShares MSCI Emerging Markets ETF (EEM | B96), it means careful investors can get in and out.

It looks like one creation (50,000 shares) occurred in late August, a first step in building an asset base.

So call me a romantic, a hayseed at heart, a booster of flyover cities. I wish NASH well. And I’ll hope for a San Francisco version, for which I submit the ticker GATE. Or maybe FOG. Or SFCA.



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