From the September 2013 issue of Research Magazine • Subscribe!

August 26, 2013

Nashville Gets Its Own ETF

The ETF owns 25 companies that range from a discount retail chain to a prison management company

Nashville has plenty of music, and now its own ETF. (Photo: AP) Nashville has plenty of music, and now its own ETF. (Photo: AP)

You’ve heard about state municipal bond funds and single country ETFs, but what about city ETFs?

A new fund called the Nashville Area ETF (NASH) is trying to reignite a trend of regional investing.

The fund is linked to the LocalShares Nashville Index, which is composed of publicly traded U.S. companies that have corporate headquarters in the Nashville, Tenn. region.

Nashville was the 25th largest U.S. city, with a population of 624,000, as of 2012.

Although Nashville is renowned as a music recording center, health care is actually its largest industry sector. Nashville is home to more than 300 health care companies, including ­Hospital Corporation of America (HCA), the world’s largest private operator of hospitals.

Currently, NASH owns 25 companies that range from discount retailer Dollar General to prison manager Corrections Corporation of America. Around 50% of the fund is comprised of healthcare companies.

Managers for NASH are betting that people’s familiarity with the companies headquartered where they live will motivate them to invest.

“They have a relative that has been to an HCA hospital. They eat at Cracker Barrel. They shop at Dollar General or they go to church with somebody at Tractor Supply,” said Michael D. Shmerling, chairman of LocalShares. “There’s a sense of comfort in that—knowing the people, knowing the companies and knowing the products.”

As of last year, the health care industry contributed an estimated $30 billion annually and 200,000 jobs to the Nashville-area economy. Other major industries in Nashville include insurance, finance, and publishing.

The track record for regionally focused ETFs isn’t good. Single state funds linked to companies in Oklahoma and Texas both folded just a year after being launched in 2009.

LocalShares is the investment ­advisor behind NASH and the ­company is evaluating other ETFs based upon geographic cities and locations. The company was founded in 2010 by Shmerling, Elizabeth Seigenthaler Courtney and William S. Decker.

NASH’s total expenses after fee waivers is 0.49%.

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