Tuesday, August 6, 2013

An Investment Gimmick: Nashville ETF

An Investment Gimmick:  Nashville ETF

Last week, a money management firm called Local Shares LLC launched an exchange-traded fund that consists of 24 companies located in and around Nashville (OTC: NASH), Tennessee.  The ETF charges 0.65% for investing in a completely inappropriate index fund.  Management has graciously waived 0.16% of the fee, so for the moment you can own a piece of corporate Nashville for only 0.49%. [1] Even at a discount this is a ridiculous fee.  The money manager really doesn’t do anything other than mechanically building a portfolio of the largest companies in the Nashville area.
Dividing Accounts (1995)
For investors this is truly a bad investment choice.  Because Nashville is the home to a lot of health care companies, the portfolio consists of a ton of health care exposure in companies such as HCA and Vanguard Health Systems.[2]  In other words, the portfolio is poorly diversified.  For those Nashville loyalists who think they are supporting the local economy, think again.  While these companies may be headquartered in the Music City, much of their business activity is scattered across the United States. 

Local Shares doesn’t manage the ETF.  That task has been farmed out to DWM, a tiny wealth management firm.  Local Shares appears to be a vehicle for marketing and launching Nashville ETF and other regional funds.  A firm named Geary Associates launched two ETFs designed to create exposure to Texas and Oklahoma.  Those funds closed for lack of interest.  I hope Nashville ETF closes before it lures unsophisticated Tennesseans into an inappropriate and expense gimmick.

[2] http://www.nashvilleetf.com/fund-holdings-1.aspx

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