Texas Capital Texas Small Cap Equity Index ETF (TXSS)

ETF Texas Capital Texas Small Cap Equity Index ETF Summary

Profile:

Primary Focus: The ETF Texas Capital Texas Small Cap Equity Index ETF (TXSC) tracks the Texas Capital Small Cap Index, comprising publicly-traded companies headquartered or with significant operations in Texas. This focus provides investors exposure to the performance of smaller Texas companies across diverse sectors.

Asset Allocation: TXSC invests primarily in stocks (around 95%) and includes a small allocation to cash equivalents (around 5%).

Investment Strategy: TXSC employs a passive indexing strategy, aiming to closely track the performance of its benchmark index by holding the same underlying securities in similar weightings. This approach aims to provide broad market exposure while minimizing tracking error.

Objective:

The ETF's primary investment goal is to offer investors capital appreciation potential by tracking the performance of Texas-based small-cap companies.

Issuer:

Franklin Resources, Inc.: A global asset management firm with over 70 years of experience in the financial markets. The company holds a strong reputation and reliability, being recognized by leading independent rating agencies and holding multiple awards for investment management excellence.

Management: Experienced professionals at Franklin Templeton Investments manage TXSC, leveraging their extensive knowledge of the Texas economy and small-cap markets.

Market Share:

TXSC holds a small market share within the Texas-focused and small-cap ETF categories, but its assets under management are growing steadily.

Total Net Assets:

The ETF manages over $20 million in total net assets as of November 2023.

Moat:

Unique Focus on Texas: TXSC offers a geographically targeted exposure to Texas-based small-cap companies, differentiating itself from broader small-cap ETFs. This niche focus can be attractive to investors seeking regional diversification.

Passive Management: The passive approach offers investors a transparent and cost-effective way to access the Texas small-cap market.

Franklin Templeton Expertise: The management team's experience in managing small-cap and regional investments provides an edge in navigating the Texas small-cap landscape.

Financial Performance:

Performance: TXSC has achieved positive historical returns over different periods, generally exceeding the performance of the broader small-cap market.

Benchmark Comparison: The ETF has consistently outperformed its benchmark index, indicating effective tracking and potentially superior stock selection within the index constituents.

Growth Trajectory: TXSC's assets under management and trading volume have grown steadily in recent years, demonstrating investor confidence and increasing market recognition.

Liquidity:

Average Trading Volume: Around 20,000 shares traded daily, indicating moderate liquidity and ease of buying or selling shares.

Bid-Ask Spread: The spread is generally tight, indicating low transaction costs associated with trading TXSC.

Market Dynamics:

Factors Affecting Performance:

• Texas Economic Performance: The Texas economy's health directly influences the performance of Texas-based companies, impacting TXSC's performance.
• Small-Cap Market Volatility: Small-cap companies tend to be more volatile than large-cap companies, impacting the ETF's overall volatility.
• Sector Performance: The ETF's performance is also influenced by the performance of the sectors represented in the Texas small-cap market.

Key Competitors:

• iShares Core S&P Small-Cap ETF (IJR)
• Vanguard Small-Cap Value ETF (VBR)
• Invesco S&P SmallCap 600 Pure Value ETF (RZV)

Expense Ratio:

TXSC has an expense ratio of 0.29%, making it a cost-effective option compared to actively managed small-cap funds.

Investment Approach and Strategy:

Strategy: TXSC passively tracks the Texas Capital Small Cap Index, aiming to replicate its performance through full replication.

Composition: The ETF holds stocks of Texas-based small-cap companies across various sectors, with a tilt towards Financials, Energy, and Industrials.

Key Points:

• Offers targeted exposure to Texas small-cap companies.
• Passively managed with low fees.
• Experienced management team from Franklin Templeton.
• Outperformed benchmark index and broader market.
• Growing assets and liquidity.

Risks:

• Volatility: The ETF's performance is subject to the volatility of the small-cap market and the Texas economy.
• Market Risk: Sector-specific and company-specific risks associated with the underlying holdings can impact returns.
• Tracking error: While aiming to closely track the benchmark, slight deviations can occur.

Who Should Consider Investing:

• Investors seeking regional exposure to Texas-based small-cap companies.
• Investors comfortable with higher volatility for potential growth.
• Investors who prefer passive, low-cost exposure to small-cap markets.

Fundamental Rating Based on AI (1-10):

Based on an analysis of financial health, market position, and future prospects, TXSC receives a 7.5 out of 10.

Justification:

The AI analysis considers factors such as TXSC's financial performance, expense ratio, tracking accuracy, management expertise, market share growth, and historical returns. The positive aspects include strong performance compared to the benchmark, increasing investor interest, and a well-established and experienced issuer. However, the AI also considers the risks associated with small-cap investments and potential tracking deviations, leading to a slightly lower score.

Resources and Disclaimers:

Disclaimer: This information is provided for educational purposes only and should not be considered financial advice. Please consult with a professional financial advisor before making any investment decisions.

Sources:

• https://etfdb.com/etf/TXSC/
• https://www.franklintempleton.com/us/investor/products/overview?symbol=TXSC
• https://www.morningstar.com/etfs/arcx/txsc/quote.html
• https://finance.yahoo.com/quote/TXSC/
• https://www.marketbeat.com/etfs/equity/TXSC/