Posted: August 1, 2013
A new fund on the New York Stock Exchange is a collection of stocks in publicly traded companies that have one thing in common: the city they call home. The fund managers say it will be an opportunity for locals to invest in companies they know. If it succeeds, other cities could be next.
There's a hot stock tip floating around Nashville, and it's a first-of-its-kind investment fund that begins trading on the New York Stock Exchange Thursday.
The fund is a collection of stocks in publicly traded companies that have one thing in common: the city they call home.
When people buy into the Nashville Area Exchange Traded Fund — which starts trading at $25 a share — they will essentially be placing a bet based on an area code.
"So everyone will have a way to invest in our companies that is unlike that of any other city in the country," said Beth Courtney when she announced the creation of this investment fund on a riverbank with Nashville's modest skyline behind her. "Own this town," the fund's promotional materials proclaim.
Courtney and her business partners are trying to make money through the venture, which charges fees for managing the portfolio. But Mike Shmerling, chairman of LocalShares Inc., also sees an opportunity for folks to invest in the companies they know instead of the giant mutual funds full of firms they don't know much about.
"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 from Tractor Supply," Shmerling says.
The plan, if it works, is to expand this concept to other cities. The team has formed a company called LocalShares, and co-founder Bill Decker says it operates on the assumption that some places are just more business friendly.
"We think we can show there's something about those local economic ecosystems that seems to be especially supportive of companies that are headquartered there," Decker says.
Nashville, as a city, is a place that at least has a buzz at the moment. It's attracting droves of young people, like Angie Nicolletta who came for a job opportunity.
"Nashville is like a new up and coming, booming city from everything that I've seen," Nicolletta says.
Nicolletta is on her usual visit to a dog park that overlooks the city's commercial center. She and others say owning a piece of Nashville sounds fun, even just for the novelty of it.
Mark Hill works in real estate and also dabbles in trading stocks. He says putting money in just one place goes against what he's learned about investing.
"It's a geographical limitation that could really bite you pretty good if you didn't watch out," Hill says.
There have been a few attempts at exchange-traded funds focused in single states: Oklahoma and Texas. Both folded because there weren't enough buyers.
Experts are dubious about an even more restricted fund. One calls it "the most absurd product to hit the market." Eric Dutram of Zacks Investment Research in Chicago is more diplomatic.
"I've never been to Nashville. I've heard good things, but it seems an odd place to start," Dutram says.
Why not a city with many more corporate headquarters in a more diverse set of industries, he asks. The Nashville fund has just two dozen companies, and half of them are related to health care.
The optimists seem to be people who do business in Nashville. They include the city's mayor, Karl Dean, who has been drumming up investors.
"I am just bullish on Nashville, and I think everybody ought to be," Dean says.
The city's business-friendly image will get a true market test as the fund tries to survive on the stock exchange.
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