Ed Rosenberg, Head of ETF and Funds Management at Texas Capital, joined Keith Black, Managing Director of RIA Channel, to discuss investing in companies headquartered in Texas.
The State of Texas has been a key beneficiary of domestic migration trends, as millions of Americans are leaving high-cost Northern and coastal states for a new life in the South. Rosenberg notes that Texas is attractive due to the lower cost of living and warmer winters. Texas charges no income tax to either individuals or corporations, which is leading companies to join this relocation trend. The lack of a state income tax frees up corporate funds to enhance profitability, grow wages, or reinvest in growth projects.
Texas has been the fastest-growing state for the last twenty years with GDP that would rank eighth globally. In the US, the GDP of Texas is second only to California. ETFs have been created to invest in countries with much smaller economies than Texas.
The Texas Equity Index ETF (TXS) and the Texas Small Cap Index ETF (TXSS) invest in companies headquartered in the State of Texas with sectors weighted based on their contribution to the state’s GDP. The Texas economy is diverse, with sector weights above 10% for energy, healthcare, real estate, and energy, with the largest weight on the consumer discretionary sector. This is in contrast to cap-weighted indices, such as the S&P 500, that have large weightings in the technology sector.
The Texas Oil Index ETF (OILT) invests in energy companies based on their share of the state’s energy production, which includes companies domiciled globally. Texas is the largest producer and exporter of oil in the US, as well as the fourth largest global producer. West Texas Intermediate light sweet crude oil is regarded as the highest quality.
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