New ETFs Are Betting Big on Texas

The Lone Star State may have just one star, but its ETFs are numerous.

Three issuers have now launched or filed for funds that hold companies specifically based in Texas, which has enticed hundreds of businesses to relocate there, including crypto trading platform Coinbase and X (formerly Twitter). Horizon Kinetics filed this month for a product that would place 80% of its holdings in Texas-based securities, following iShares, which launched its own Texas-focused ETF earlier this year. The funds give investors a simple way to bet on the success of firms headquartered in the state, and the trend is likely to continue as more corporations seek tax breaks and issuers pursue narrower and narrower niches, experts said.

“If you look at Texas relative to some other states, the environment for these businesses is really good,” said Carlos Pena, a portfolio manager at Texas Capital, which has several ETFs focused on the state. “It’s a result of all of the policies, infrastructure [and] talent pools we have that companies can come and succeed.”

All My ETFs Live In Texas

Texas has no state income taxes for individuals or corporations, and its laws are generally favorable to businesses, such as one that limits shareholder lawsuits against corporations. The state is also favorable to people moving there, Pena said, not just companies, making it an economic engine. “Texas has more Tier 1 research universities than any other state, so we have that talent pipeline,” he said. “[People are] also moving to Texas because the cost of living is significantly lower … relative to New York and California.”

Still, niche strategies come with risks. Much of the Texas economy is dependent on oil production, a sector that’s experiencing slowing growth. Performance of Texas-focused funds is also mixed:

• The iShares Texas Equity ETF (TEXN), which is down 1.8% after launching in June, tracks an index of companies based in Texas.
• The Texas Capital Texas Equity Index ETF (TXS), which began trading in mid-2023 and tracks Texas companies weighted by both their contribution to the state’s overall GDP and their market cap. TXS is up 9% year to date.
• Texas Capital’s small cap equity index fund (TXSS) is down 3% year to date. 

All Signs Point to TX. Earlier this year, the New York Stock Exchange also launched the NYSE Texas, which is aimed specifically at companies located in the southwestern US, and another exchange, the Texas Stock Exchange, or TXSE, is set to launch next year. More ETFs focused on Texas will arrive in the months to come, Pena said.