OOK Advisors has launched their second state-specific exchange traded fund (ETF), this time focusing on Texas. It’s called the TXF Large Companies Exchange Traded Fund (TXF).
While the concept of capturing the Texas economy is good, the ETF itself appears to be little concerned with actual Texas exposure and more so with making high fees and appealing to many people’s affinity with the state.
That’s because, as ETF database highlights, the fund charges 10 times the expense ratio of the cheapest large-cap equities ETF. TXF’s expense ratio is 0.85%, putting it near the 1% some active managers charge for customised porfolio management.
We’ll go further and point out that the fund is merely filled with companies headquartered in Texas, such as Exxon Mobil (XOM). But come on, Exxon isn’t nearly a play on Texas, it’s majority-exposed to the economic environment of its businesses across the world, not Texas. Many other TXF holdings are similarly not Texas-exclusive plays. So despite having a portfolio filled with Texas headquartered companies, are you primarily getting exposure to Texas? Not at all. Thus the ETF isn’t a proper Texas bet of any sort.
Which makes the higher fees seem purely wasteful since one can get US equity exposure elsewhere for far less.
ETFDatabase: The old saying that everything is bigger in Texas apparently applies to expense ratios as well. TXF charges 85 basis points, more than 10 times the fees charged by the cheapest ETF options for exposure to large cap equities (two of Schwab’s new ETFs offer expense ratios of 8 basis points). For investors looking to overweight their portfolio in energy companies, there are also much cheaper options. The Energy SPDR (XLE) charges only 0.21%, while Vanguard’s Energy ETF (VDE) charges 0.25%. The impact of these differences in costs on bottom line returns can be material, particularly when compounded over several years.
As is the case with many ETFs, we suspect the strategy here is that there’ll be at least a few investors to fall for the branding. Clearly they’re just trying to trap some Texas-lovers with higher than usual fees.
They even claim to donate 10% of their management fee to a charity, but come on, it still leaves a lot of extra fee for them. That’s the worst, when you snag clients with higher than necessary fees by making yourself look charitable.
If we’re missing something here, feel free to tell us. In either case, I’m sure they’ll be happy with the publicity. But please, buyer beware, these fees seem pointlessly high.