An ETF for Lone Star Investors?

State ETFs are a compelling idea if they offer investors a way to profit from differences in state economies, regulations and taxes, but the new Texas ETF is filled with multinationals that offer almost zero exposure to the Texas economy.

Last week's introduction of the Oklahoma Exchange Traded Fund (OOK - commentary - Trade Now) proved that, although ETFs have sliced the market thin, there are still plenty of niches out there waiting to be filled.

On Wednesday, the TXF Large Companies ETF (TXF - commentary - Trade Now) began actively trading. This ETF is designed to be the second state-focused exchange-traded fund to hit the market. Where OOK tracks a basket of firms centered in Oklahoma, TXF's index is made up of some of the largest companies headquartered in the Lone Star State. The instrument's underlying index, the Spade Texas Index, boasts big names such as ConocoPhillips (COP - commentary - Trade Now), Schlumberger (SLB - commentary - Trade Now), and AT&T (T - commentary - Trade Now).

Looking at the sector breakdown, it is evident that this fund is a strong play on the oil and gas industry. These firms make up over 63% of the index's holdings. The next largest industry, making up a little less than 9% of the index, is technology.

In order to gain access to the Spade Texas index, firms must meet a number of specific criteria. Besides being headquartered in Texas, companies need to be listed on the NYSE or the Nasdaq, have a minimum $100 million market valuation, have a minimum daily sale price of $5 and be able to maintain liquidity.

Like OOK, as an added incentive to investors, no less than 10% of the TXF's management fees will be donated to Aaron's Bridge, a foundation aimed at facilitating access to more treatment options for Oklahoma youth with developmental disorders including autism.

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At the time of publication, Dion had no positions in stocks mentioned.

Don Dion is president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.