How About a Detroit ETF?


The Nashville Area ETF (NYSE: NASH), courtesy of LocalShares, commenced trading Thursday, marking the debut of the first city-specific ETF in the U.S. After just one trading day, it is too early to pass judgment on NASH.

It may be debatable that Nashville, Tennessee would have been the first city most folks would have picked to get its own ETF, but there are plenty of companies in the region with which to build an ETF. NASH constituents include familiar names such as Dollar General (NYSE:DG), HCA Holdings (NYSE:HCA) and Louisiana Pacific (NYSE:LPX), according to issuer data.

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Related: Nashville ETF Debuts Thursday.

At this point it is just speculation, but if NASH is successful, that could spark the creation of some other city-specific ETFs. In the wake of the largest municipal bankruptcy in U.S. history, Detroit may not appear to be a likely candidate to get its own ETF, let alone see that ETF deliver good returns.

However, a basket of Detroit-area publicly traded companies has served investors quite well this year. Using a quasi-equal weight approach where prospective holdings of the theoretical Detroit ETF, which we will give the ticker "MOTR," are capped at eight percent could have yielded impressive results.

Detroit is the "Motor City," and that means Ford (NYSE:F) and General Motors (NYSE:GM) must be included in MOTR's lineup. Those stocks combine for nearly 13 percent of the weight of the First Trust NASDAQ Global Auto Index Fund (NASDAQ:CARZ), something that has worked out very well for that ETF this year.

Auto parts suppliers BorgWarner (NYSE:BWA), Lear (NYSE:LEA) and TRW (NYSE:TRW) will need to be included as well. Again, not a bad thing as all three are flirting with new highs.

Sticking in the realm of old-line U.S. companies, Whirlpool (NYSE:WHR) is not based too far from Motown. Up almost 21 percent in the past three months, the appliances maker hit a new high Thursday.

Assuming we cap all of MOTR's holdings at eight percent and make some slight tweaks based on market value, it would be conceivable that the six stocks just mentioned would combine for 35 to 40 percent of the Detroit ETF's weight.

Dow Chemical (NYSE:DOW), nearly 8.5 percent of the Materials Select Sector (NYSE: SPDR), needs to be in MOTR, too and arguably merits a weight of about eight percent. Let's get some staples exposure to lower MOTR's beta a bit and another eight percent to Battle Creek-based Kellogg (NYSE:K), which is up 15 percent year-to-date.

How about some healthcare exposure? Medical device maker Stryker (NYSE:SYK), the fourth-largest holding in the iShares U.S. Medical Devices ETF (NYSE:IHI) fits the bill. Stryker shares have surged 27.2 percent this year and hit a new high Thursday.

Don't forget financial services. Shares of Midland-based Chemical Financial (NASDAQ:CHFC) are up 25.2 percent year-to-date. Sure it is a micro-cap, but Alma-based Firstbank (NASDAQ:FMBI) merits a slice of MOTR's financial services pie. After all, that stock is up 56 percent this year. Small-cap bank Flagstar (NYSE:FBC) has been a laggard this year, but has soared over 30 percent in the past three months and could also occupy a small spot in MOTR's lineup.

And there we have the first ever ETF devoted exclusively to the greater Detroit area. Ticker: MOTR.

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Time to Buy Detroit? Join Marketfy's Dave Moenning on Sunday, August 4 for a free webinar to discuss the advantage of the largest bankruptcy in U.S. history.

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