Texas Capital plans to launch its first ETF

Texas Capital Bank is planning to enter the highly-competitive exchange-traded funds space by betting on its home state.

In a recent public filing, the Dallas-based financial titan revealed that it intends to launch its exchange-traded funds called "Texas Capital Texas Equity Index ETF." According to the filing, the fund will track an indice of more than 250 publicly traded companies with headquarters in Texas and a market cap of at least $25 million.

Texas Capital has yet to announce a launch date, but the fund will be its first venture into ETFs. In recent years, the popularity of this investment vehicle has increased with the rise in passive investing. ETFs typically consist of a collection of assets, similar to mutual funds. An ETF is traded on the exchanges just like a stock, with its value fluctuating throughout the day.

ETFs must disclose their portfolios daily, but some money managers received regulatory approval to launch "semi transparent" ETFs in the past few years that only disclose their holdings monthly or quarterly. According to the filing, Texas Capital's ETF is required to disclose its portfolio holdings on a daily basis. However, some money managers have received regulatory approval in recent years to launch "semi-transparent" ETFs that only reveal their holdings monthly or quarterly.

Texas Capital Securities, the investment banking arm of Texas Capital Capital, hired Edward Rosenberg as its managing director in March. Rosenberg has over 28 years of experience in fund management, most recently as the head of ETFs for American Century Investments. American Century Investments was the first firm to introduce semi-transparent exchange traded funds.

A Texas Capital spokeswoman (Nasdaq TCBI) declined comment on the bank’s ETF plans, citing a "quiet time" before its upcoming quarterly report.

Bloomberg reported that funds with a state-specific focus are rare. Texas Capital's choice to make its ETF its first state-focused ETF shows that the company is confident in its own state.

According to the filing, Texas Capital believes that companies with headquarters in Texas enjoy "certain economic, regulatory and taxation benefits, as well as a more productive workforce" compared to other states.

According to Texas Capital, "In the Advisor's opinion, the strong business climate in Texas is demonstrated, among other things by its infrastructure spending, resources, low cost of doing business, export data and third-party recognitions and rankings."

The bank notes that Texas's economy is "large and varied" and that key industries include advanced Manufacturing, aerospace, aviation and defence; biotechnology and the life sciences; corporate service; energy; and Information Technology.

The ETF will weight sectors according to their contribution to Texas' gross domestic product as reported by the U.S. Bureau of Economic Analysis for the private sector. Within each sector allocation, the fund will use market-capitalization weightings to represent the public companies headquartered in the State of Texas operating within the identified sector.

According to the filing, "The Advisor believes that by replicating the Index, the Fund offers a cost effective opportunity to directly invest in companies that are benefiting from the superior economic climate in Texas."

J. Steven Orr is the portfolio manager of the fund. Orr joined Texas Capital as Chief Investment Officer in 2013.