Because the Nashville Area ETF is focused on a small geographic region, it could be more susceptible to risk than a broader-based ETF. While its holdings are not heavily concentrated in any one industry, it could be negatively impacted by economic and political conditions or changes in tax policy. A natural disaster—or any other kind of disaster, for that matter—could also hinder business operations in the area.
That said, LocalShares said it plans to look at other potential geographic locations in the U.S.
While adding an ETF to a retirement portfolio can be a great way to increase market exposure, improve diversification, and reduce some element of risk, if the ETF is in too much of a niche, it can also have the reverse affect. When it comes to buying ETFs, it’s best to consider those equities that offer the best overall value.
This article is brought to you courtesy of John Whitefoot from the Daily Gains Letter.