Last November we criticised a new ETF which positioned itself as a ‘Texas ETF’, investing in companies whose headquarters were in Texas.
A seemingly useless asset class. At the time we questioned the notion of investing in Texas-headquartered companies, and touting it as a Texas investment.
This is because companies headquartered in Texas weren’t a representation of Texas itself, given that many Texas-headquartered companies such as Exxon Mobil (XOM) were global businesses whose fate rested on far more than merely Texas’s economy in isolation. This made the Texas branding appear disingenuous, even if everything was spelled out in the details.
10x the fees, then the blogosphere criticised it. The Texas ETF we cited in particular, TXF Large Companies Exchange Traded Fund (TXF), also initially charged nearly 10x the fees of other ETFs, though the fund manager reduced its fees after this was highlighted on the blogosphere, notably by the site ETFdb:
‘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.’
We also cited an Oklahoma ETF, and said that these state ETFs seemed like gimmicks aimed at capturing investors’ sentimental feelings for a particular state rather than delivering a coherent investment strategy.
An email campaign from the manager. After our online criticism of the investment theory behind state-ETFs, we were repeatedly sent emails from the management company behind these new state ETFs, Geary Advisors, repeatedly touting the month-by-month performance of the funds as if this alone proved the investment theory behind buying Texas or Oklahoma-headquartered companies.
Well, it turns out this ETF saga is over. These state ETFs are shutting down:
Geary Advisors, the firm that last year pioneered state-specific ETFs, has announced that it will close down the Oklahoma Exchange-Traded Fund (OOK) and Texas Exchange-Traded Fund (TXF) by the end of the month. Both funds launched in late 2009, but despite impressive performances struggled to build up assets and trading volumes.
Blaming ‘the man’. But here’s where it gets wacky. The founder appears to be blaming the FDIC for scuttling his ETFs:
According to The Oklahoman, Geary CEO Keith Geary believes that the lack of interest in his firm’s products may have been related to his testimony in a court case last year. Geary testified last June on behalf of Frontier Bank, which had challenged an FDIC cease-and-desist order claiming the bank was operating its leveraged assets program in an unsafe manner. He wrote in an e-mail to the paper:
I have reasons to believe the FDIC has repeatedly reached out to a variety of government entities and business relationships that I am involved with for the sole purpose of discrediting and ruining me financially and professionally.
It’s either the FDIC’s fault, or its a matter of the initial fee structure and investors’ belief that an ETF owning Texas or Oklahom-headquartered companies doesn’t represent anything significant as an asset class. We wish the best to Greary advisors and recommend they create a new ETF that has a more understandable raison d’être.