Can Texas Ride Its State-Based ETF to Success?

It remains to be seen whether a proposed Texas exchange-traded fund will take off. Lone Star state pride aside, what financial advisors really want are ETFs that deliver returns for their clients.  

Based in Dallas, the Texas Capital Bank, whose parent is Texas Capital Bancshares Inc.—which is also the ultimate parent of Texas Capital Securities—is betting on Texas businesses with its filing with the Securities and Exchange Commission for approval to launch an ETF made up entirely of companies domiciled in the Lone Star State. If approved, the fund will be called the Texas Capital Texas Equity Index Fund ETF (TXS).  

“If any state-based ETF is able to survive, I believe Texas would be at the top of the list. There is immense state pride within Texas,” said financial advisor Robin Giles of Katy, Texas.  

Even though other states such as Oklahoma and Tennessee have attempted their own state-based ETFs, and failed, “people like putting money where their loyalty lies and would like to support Texas’ rapidly growing economy. The growth of business in the state, and increasing population statistics, may make it attractive from an investment perspective,” she insists. 

Texas ranked among the top five states with the highest real GDP in 2022, according to the Bureau of Economic Analysis, and came in second in the number of new residents moving there, as noted by the National Association of Realtors. 

To shore up the ETF’s chances for success, Edward Rosenberg was hired to serve as managing director of Texas Capital Securities, working directly with investment banking and private wealth professionals to lead the fund’s management strategy. Before joining the Texas bank, Rosenberg headed ETFs at American Century Investments. 

Giles says that opinions about the state could also have an impact on the ETF: “The political climate of the state is polarizing,” which could draw in investors with conservative political beliefs but repel those at the opposite end of the spectrum.  

“I believe most of the investment would come from within the state itself,” she added. 

As Lawrence Pon, a financial advisor in Redwood City, California, noted, ETFs come in many different “flavors.” So why not Texas? He believes the fund's viability will be determined by how the ETF is invested, what percentage of energy versus tech companies is in the makeup and whether the allocation is based on market capitalization.  

On a light-hearted note, Pon offered up two other names for the ETF: “How about naming the Texas ETF the ‘Lone Star ETF’ or ‘Remember the Alamo ETF’?” 

Follow Michelle Lodge on Twitter @lodgemich