There’s an ETF For That? Investing in Texas

Texas Capital Texas Equity Index ETF

TXS

TXS is the “buy the haystack” option for anyone looking to invest in the broader Texas economy. The ETF launched on July 12, 2023, and charges a 0.49% expense ratio.

It tracks the proprietary Texas Capital Texas Equity Index, which includes companies headquartered in Texas and applies a unique dual-weighting methodology: sector weights are based on Texas GDP, while individual companies are weighted by market cap.

Since its inception, TXS has performed well, delivering an annualized return of 19.24%, easily outpacing its secondary benchmark, the Syntax U.S. Midcap 800, which returned 11.8% over the same stretch.

There’s a surprising number of major companies domiciled in Texas, and not just the obvious ones like Texas Instruments or Texas Roadhouse.

Top holdings in TXS include CrowdStrike, a leading cybersecurity firm; Tesla, which relocated its headquarters from Palo Alto to Austin in 2021; Charles Schwab, the brokerage giant now based in Westlake; and Waste Management, one of the largest garbage companies in North America.

As expected, the fund tilts heavily toward energy and information technology, two very different but equally dynamic sectors that help power the Lone Star State’s fast-growing economy.

Texas Oil Index ETF

OILT

Texas has built a reputation in recent years as a rising tech hub, but its old economy roots in cattle and oil still run deep. That legacy is front and center in OILT, the first state-specific energy ETF focused exclusively on companies tied to Texas oil and gas production at a 0.35% expense ratio.

OILT tracks the Alerian Texas Weighted Oil and Gas Index, which selects publicly traded companies responsible for more than 0.1% of Texas’s annual oil and gas production over the past 10 years.

As expected, that makes the ETF heavily correlated to West Texas Intermediate (WTI) crude oil, since Texas is one of the largest producers of WTI globally.

The Permian Basin, which spans West Texas and parts of southeastern New Mexico, sits at the heart of this production, and OILT’s holdings reflect that. It’s an integrated oil ETF with exposure to upstream, midstream, and downstream operators.

The largest holding is Exxon Mobil, which is deeply entrenched in Permian operations. Other top names include ConocoPhillips, Occidental Petroleum, and Kinder Morgan, giving investors access to exploration, production, and pipeline transport all in one fund.

One surprising omission from the latest holdings file is Texas Pacific Land Corp, or TPL. TPL is unique in that it’s not an oil producer or transporter. Instead, it’s a landowner. The company holds vast tracts of mineral-rich land across Texas and generates revenue by leasing those rights to drillers.

It’s a royalty-driven business model with minimal operational risk, making it distinct from traditional oil companies. Its absence may stem from the fund’s focus on companies directly involved in production and transportation, rather than those who collect royalties passively.

Still, given its name and footprint, TPL's exclusion is notable, and is one that I think may warrant a second look if OILT’s index methodology is ever revised.

Texas Capital Government Money Market ETF

MMKT

-0.04%

Finally, for those seeking a low-risk option for cash management, there’s MMKT. This fund is designed to be a safe parking spot for capital, offering daily liquidity and steady income with minimal volatility.

 It charges a modest 0.20% expense ratio and is legally classified as a government money market fund, meaning at least 99.5% of its assets must be invested in cash, U.S. government securities, and/or repurchase agreements collateralized by government securities.

Unlike money market mutual funds, which maintain a fixed $1 net asset value (NAV), MMKT is traded on an exchange like any ETF. That means its market price fluctuates slightly throughout the day, though in practice, volatility is negligible.

The ETF accrues interest throughout the month, which gradually pushes the NAV higher. Then, on its ex-distribution date, the NAV drops by the amount of income earned, and that payout is delivered to shareholders a few days later.

This creates a predictable sawtooth pattern in the fund’s price chart, a feature, not a bug, for investors familiar with how ultra-short-term fixed income ETFs function.

MMKT currently offers a 7-day SEC yield of 4.27%, which moves with prevailing short-term interest rates. With the Federal Reserve signaling no rush to cut rates, investors can expect competitive income for the time being. That makes MMKT a decent alternative to more traditional Treasury bill ETFs.

Please note that this article reflects the author’s personal views and does not represent the opinions of the publication or its affiliates. It is for informational purposes only and does not constitute investment advice. It is essential to seek guidance from a registered financial professional before making any investment decisions.