Could a City ETF, like the #NashvilleETF (NYSE:NASH), Invest in Local Businesses Too?

A few weeks ago, with some fanfare, the Nashville exchange traded fund (ETF) began being traded on the New York Stock Exchange.  Exchange traded funds are kind of like mutual funds in that they invest in lots of companies instead of just one, but they trade on the public stock market instead of through a financial company.

What sets the Nashville ETF apart from other ETFs is that it solely invests in companies that are headquartered in the Nashville metro area – and gives investors who want to support the regional economy a way to do so.  Nashville is a growing, creative place that is attractive to live and work.  It makes sense that people would be bullish on the area.  The Nashville ETF doesn’t necessarily capitalize on the attractiveness of the place though – it is about the (big, public) companies in the area.  Here are a few details about the holdings of the NASH ETF.

It invests in 24 companies only – all are headquartered in the greater Nashville area.  All companies have a market capitalization of at least $100 million dollars (not huge businesses, but certainly not small startups either – they are all public and the general investing community thinks that the business is worth $100 million).

Each individual company stock must also have at least 50,000 shares change hands daily (as measured by average volume of exchange).  For a list of specific holdings in the fund, see this link from the ETF managers.  The fund managers change the amount of money they invest in each company, but with 24 companies each is an average of 4.17% of the entire fund.  (For reference the entire fund is just under $4.9 million dollars). Each holding averages $204,000.

So the fund invests in larger businesses that are headquartered in the Nashville area, but many of which derive their income outside of the region and employ workers outside of the region.  These are also companies that likely do not face the smaller financing and lending hurdles that new small businesses face.

Obviously there are restrictions and regulations since the ETF is a publicly available stock offering, but it seems that there is a way that at least one of the $200,000 shares could be an entity that made small rotating loans to credit worth small businesses.  I am not the person to explain or understand the intricacies of public trading law, but if I was a local economic development professional in Nashville, I would be pursuing efforts to have a $200,000 share go into a fund like the NASH fund that would be specifically for investing in small start up companies in the area that had the potential to grow significantly.  I’d potentially look to have that $200,000 managed by an already existing public company in the finance industry that could devote the entire investment amount to an EFT.  In Nashville, this might be able to happen with Pinnacle Financial Partners (a bank) that is already traded as a part of the ETF.

Obviously something like that is speculative and someone could get into the details on financial laws about what can be a part of an ETF, but when I think about investing in a place it would be nice if just a small portion of it went to the types of businesses that make a place run.  Economic developers should look to capitalize on the ease of investing that ETFs bring to help regular investors be able to put money into a basket of local businesses.

Buying a stock or an ETF can happen at one’s computer these days and ETFs are an ideal way to invest in a place because it provides diversification across lots of entities.  In a local ETF, you would be able to split your investment money into the selected parts of the local economy, not just the new local coffee shop.  Local investors would be safer because of diversification and the coffee shop could still have access to a new funding source.  If an ETF could be crafted where even one of the smaller 4% shares went into new local small businesses (and the remaining 96% stayed in bigger and less volatile public companies), then investors could really put money into their local economy and share in the financial benefits and risks of revitalizing and growing urban economies.

Bravo to the Nashville ETF for starting a fund that lays the foundation for this, now economic developers and financial professionals need to find a way to get small businesses eligible!

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