Will Investors Dance to New Nashville ETF’s Tune?

August 7th at 4:27pm by Tom Lydon

Citizens of Nashville are taking civic pride in the new city-specific exchange traded fund, but market observers are skeptical. Nevertheless, if there’s demand, you’ll see it as investors will vote with their feet.

The Nashville Area ETF (NYSEArca: NASH), which began trading on August 1, allows anyone to invest in a broad range of Nashville, Tennessee based businesses, including Cracker Barrel, Dollar General and HCA holdings. However, two notable privately held exclusions include the Dolly Parton’s Dollywood and Grand Ole Opry, writes Ashley Lau for Reuters. [The First City-Specific ETF Targets Nashville Area]

Some, though, believe that fund’s niche strategy is too specific and potentially risky for investors, especially for Nashville denizens who could become overly exposed to the local economy and hurt their ability to stay diversified.

“I think it’s mostly a marketing tool,” Dave Nadig, president of IndexUniverse LLC’s ETF Analytics, said in the article. “It’s not like the local Nashville economy is immune to what goes on in the rest of the country.”

Historically, regional investments have not taken off either. Two state-specific ETFs, Texas Large Companies ETF (TXF) and Oklahoma ETF (OOK), launched in 2009 both closed due to poor investment demand after one year.

“Regionally-focused funds have never fared that well,” Jeff Tjornehoj, head of Lipper Americas Research, a Thomson Reuters said in the article. With the exception of municipal bond funds, which allow investors to take advantage of local tax breaks, “nothing else really stuck.”

Nevertheless, LocalShares remains undaunted, planning as many as 25 city-specific funds in the future.

“We have done a lot of research on what cities have the most dynamic ecosystems,” Chief Executive Officer Beth Courtney of LocalShares said in the article.

For people who have money in the area, who know the local economy and like the local companies and know them better than they know other publicly-traded companies, it might make sense.

“People like to know what they own,” says Nashville-based financial adviser Lee Vaughan of COVA Wealth Management, said in the article.

For more information on new fund products, visit our new ETFs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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