Everything’s Bigger in iShares’ Texas ETF

Texas will likely remain a US state for some time, much to the chagrin of the third of its residents who long for it to secede. But that doesn’t mean you can’t invest like it’s a standalone country.

BlackRock is working on an ETF to do just that. The company recently filed an initial prospectus with the Securities and Exchange Commission for the iShares Texas Equity ETF, a passively managed fund that would track a similarly named Russell index. It would invest primarily in companies headquartered in the Lone Star State. According to the world’s largest asset manager, there’s plenty of untapped demand.

“Our clients have expressed interest in accessing the Texas economy,” a company spokesperson said in a statement, but did not comment further, citing the registration process.

The State of Things

For the thousands of ETFs on the market, there are next to no products that focus on stocks in individual US states, though there are plenty that specialize in state muni bonds. Data from Morningstar Direct show just two state-specific equity ETFs, both of which are from the same firm and invest in Texas-headquartered businesses. Those are Texas Capital’s $28 million Texas Equity Index and $12 million Texas Small Cap Equity Index ETFs. 

Texas is home to a wide range of major public companies from ExxonMobil to AT&T. Its business-friendly policies have attracted more in recent years, including Charles Schwab and Oracle. It’s also an increasingly popular location for stock exchange providers, which has helped give it the nickname Y’all Street. And of course Texas’ economy is big:

• The state’s GDP is $2.6 trillion, and it’s home to 55 Fortune 500 companies.
• It is the fastest-growing state by population, attracting more than half a million people last year.

Corralling Stocks. The Russell Texas Equity Index is a subset of the Russell 3000, and to be included in the forthcoming iShares ETF, companies must have market caps of at least $500 million and a three-month daily trading volume of $3 million or more, according to the prospectus.

To compare, the top holdings in the existing Texas Capital Texas Equity Index ETF are Tenet Healthcare, Crowdstrike, Tesla, McKesson, Schwab, and Waste Management. That fund, which launched in 2023, has a return year to date of (6)% and a return of 9% over a year, compared with (7)% and (1)% for the Syntax US 800 Midcap Index for those time periods, respectively.