Texas Equity Opportunity ETF: A Texas-Focused Equity Strategy

The Texas Equity Opportunity ETF is an actively managed strategy that seeks long-term capital appreciation by investing at least 80 percent of net assets in what the manager defines as “Texas Companies” — businesses headquartered or organized in Texas, or that derive at least half of their revenue, profits, or assets from the state. The strategy invests across a broad market-capitalization spectrum, screening for companies with a market cap of $500 million or more, and combines fundamental analysis with active risk management to navigate changing market conditions.

Founded in April 2005, Team Financial Strategies is a registered investment adviser headquartered in Abilene, Texas, providing comprehensive financial planning and portfolio management services. Since 2012 the firm has focused extensively on the economic and fundamental growth trends of Texas-based equities, and manages over $150 million in assets with a team of eight.

Section 351 of the Internal Revenue Code is a long standing rule: when one or more persons transfer property to a corporation solely in exchange for that corporation’s stock, no gain or loss is recognized on the transfer. It is the same principle founders rely on when they contribute assets to a newly formed company, applied to portfolios of marketable securities. Advisors often describe it as the 1031 exchange of the equity world, though the two provisions are separate and work differently.

In practice, an investor holding appreciated securities contributes those securities in kind to a newly organized entity and receives shares of that entity in return. Because nothing is sold, no capital gain is realized at the moment of the exchange. The investor’s original cost basis and holding period carry over to the new shares, so the deferred gain travels with them and is recognized when the shares are eventually sold. Deferral is the benefit. Elimination is not on offer.

Alignment is the manager’s call. The diversification test is the tax question, and missing it can cause the transfer to be treated as a taxable sale in full. Other conditions matter in practice as well. The exchange cannot be a pre arranged sale in substance, post contribution changes to the portfolio are examined, tax law can change, and the Internal Revenue Service may look past the form of a transaction to its substance. This is why the work is done with counsel and a tax advisor rather than on the strength of a marketing page.