ETF Talk: ‘Pure Play’ Funds Target Texas and Oklahoma

 The term "pure play" commonly is used to describe investing in an individual sector or a region. Two new funds, rolled out in the past couple of weeks, give investors a chance to target the energy-rich states of Texas and Oklahoma, respectively.

The new funds simplify such targeted investing. The Oklahoma fund (OOK) took flight on Oct. 29, just two days before Halloween, while the Texas fund (TXF) launched last Wednesday, Nov. 4.

Each fund is about two-thirds concentrated in the energy sector, with banking and other industries comprising the other third. Both states also feature lower unemployment and faster growth than the broader U.S. economy. As a result, the public companies in each state have outperformed the S&P 500 going back to 2000, said Gary Pinkston, chief operating officer of Geary Advisors, of Oklahoma City, Okla., which launched and manages the funds.

Since the ETFs opened for initial trading within the past two weeks, neither has had much of a chance to build the kind of volume that I like to see before I consider recommending a fund. Daily trading volume is "low" so far for each fund, said Oklahoma native Pinkston. He also acknowledged that the fund’s expense of roughly 85 basis points is a bit high for an ETF.

Clearly, you really would need to love the outlook for the energy sector and the economies of either Texas or Oklahoma to buy one of these funds. However, I would not be surprised if both funds find a niche market of investors from Texas and Oklahoma who like the idea of investing in the public companies of each state.

The genesis of the funds occurred when a grandfather expressed an interest in buying a number of Oklahoma stocks for his grandchildren, without the hassle of needing to individually purchase shares in each company. The investment firm’s leaders followed up by creating an ETF just for Oklahoma stocks to simplify the process. The same thinking was behind the investment firm’s creation of an ETF for Texas stocks.

Each fund tracks an index of Oklahoma and Texas stocks. The Texas fund specifically focuses on the state’s largest companies. In the future, mid-sized companies and small companies in Texas could be featured in new funds that might be introduced, Pinkston said.

Two years ago, the firm offered a pre-Christmas promotion that waived commissions if people bought shares of Oklahoma companies as gifts. Many customers bought shares for their children and grandchildren. Instead of buying a gift for just one season, the investment firm pitched the idea to its customers of purchasing something that might appreciate in value and last a long time. I certainly agree with that line of thinking. The firm also prints a certificate that a gift giver can present to the recipient.

Keep in mind that the economies of many states in America are as big as smaller countries. Oklahoma’s economy is just about the size of Hungary’s. No one company can dominate either fund because there is a concentration limit of 7.5% for any one stock in the Oklahoma fund, and a 5% limit for any position in the Texas fund.

College football fans may think of Texas and Oklahoma as fierce rivals for the Big Eight and national titles each season. Both universities play an annual football game every fall in Dallas that provides a neutral site halfway between the two schools and draws the devoted fans of each. Geary Advisors is looking to tap some of that in-state loyalty to build up an investment base for both funds.

If you want my advice about which ETFs to buy and sell, check out my ETF Trader service by clicking here. Remember, I am happy to answer your questions about ETFs. To send me a question, simply click here. You may just see your question covered in a future ETF Talk.