Title: "Reshoring ETFs Surge as U.S. Manufacturing Boom Gains Traction - A Deep Dive into Investment Opportunities"
By Suzanne McGee
(Multibagger) - Investors are increasingly pouring capital into exchange-traded funds (ETFs) that spotlight companies revitalizing or expanding production within the United States, leveraging substantial government subsidies.
In 2023 alone, a staggering $2.25 billion has been funneled into a select group of ETFs emphasizing the reshoring trend. This influx has elevated their total assets to a record-breaking $9.67 billion by the end of August.
"Companies consistently cite reshoring as a long-term growth catalyst. Our objective is to identify the beneficiaries or enablers of this trend before it becomes mainstream," remarked Chris Semenuk, overseer of the actively managed Tema American Reshoring ETF, launched last year.
The Tema American Reshoring ETF has seen its assets swell from $6 million in May 2023 to $101.5 million by the end of August. Impressively, the fund is up nearly 16% year-to-date, compared with a 17.7% gain in the S&P 500.
Manufacturers are increasingly relocating production to the United States to mitigate supply chain disruptions and navigate geopolitical tensions between Washington and Beijing that are curbing investments in China.
In late 2021, Congress approved over $1 trillion for new infrastructure projects and passed a bill the following summer that allocates another $200 billion for semiconductor manufacturing.
Several high-profile corporate moves have further fueled interest. Notably, Taiwan Semiconductor Manufacturing Co (TSMC) has increased its investment in new Arizona fabrication plants to $65 billion, while the federal government awarded up to $500 million to Century Aluminum to establish the first aluminum smelter in the U.S. in 45 years.
BlackRock (NYSE: BLK) is the latest and largest ETF provider vying for investor dollars, capitalizing on the reshoring theme's central role in the U.S. presidential race. It launched the iShares U.S. Manufacturing ETF in July.
"These stocks could benefit regardless of the election outcome," stated Jay Jacobs, head of thematic and active ETFs at BlackRock, in the latest episode of "Inside ETFs." "It's a rare area of bipartisan consensus."
The iShares U.S. Manufacturing ETF has gained 3.5% over the last 30 days, compared with a roughly 0.9% gain for the S&P 500, according to LSEG. The new BlackRock fund now manages nearly $6 million in assets.
Notable performers in the U.S. manufacturing sector include Caterpillar (NYSE: CAT) and Eaton Corp. (NYSE: ETN), which are up 16.4% and 27.6% year-to-date, respectively. The S&P 500 industrials sector, home to many companies held by these ETFs, has risen 13.5% this year.
However, an influx of weaker-than-expected economic data in recent months, including a surprising dip in U.S. manufacturing construction spending, has sparked concerns that U.S. growth may be decelerating. The Federal Reserve is anticipated to cut interest rates for the first time in years at its September 17-18 meeting to ease monetary policy ahead of a potential economic slowdown.
Simultaneously, some stocks have become more richly valued as the broader market has rallied. For example, the industrials sector is trading at a forward price-to-earnings multiple of 26.7, compared with 19.2 a year ago.
"Attractively priced opportunities are scarce; the valuations we saw in early 2020 are no longer available," said Jeff Muhlenkamp, manager of the $249 million Muhlenkamp Fund, a mutual fund.
Moreover, reshoring is not an automatic ticket to above-average returns. Companies repatriating or expanding manufacturing facilities in the U.S. will likely encounter higher labor and raw materials costs.
Whether this will dampen the strong growth these funds have experienced this year remains uncertain. Assets in the $1.5 billion First Trust RBA American Industrial Renaissance ETF, which debuted in 2014, have tripled in the last 12 months. Meanwhile, the $8.04 billion Global X U.S. Infrastructure Development ETF, launched in 2017, has grown by 50% in the same period, according to Morningstar.
The latter fund has also posted year-to-date returns of 26.6%, outpacing the S&P 500, according to LSEG.
Jacobs believes this is merely the beginning.
"If anything, this is more of an entry point for investors," he concluded.
Analysis and Breakdown:
In simple terms, this article talks about how investors are putting a lot of money into funds that invest in companies moving their manufacturing back to the U.S. This trend, called "reshoring," is getting a boost from the U.S. government, which is spending a lot on infrastructure and manufacturing projects.
- Why It Matters: Companies are bringing production back to the U.S. to avoid problems with overseas supply chains and political issues between the U.S. and China.
- Government Support: The U.S. government has committed over $1 trillion for new infrastructure and $200 billion specifically for semiconductor manufacturing.
- Big Moves: Companies like TSMC and Century Aluminum are making significant investments in U.S. manufacturing, drawing more investor interest.
- Investment Opportunities: Big investment firms like BlackRock are creating new funds to capitalize on this reshoring theme, which has bipartisan support.
- Performance: These funds are performing well, often outpacing the broader market and other sectors.
- Risks: There are concerns about slowing U.S. economic growth and rising stock valuations, which could affect future returns.
Impact on You: If you're an investor, these reshoring-focused funds might be an exciting opportunity. However, be aware of the risks, such as potential economic slowdowns and higher costs for companies moving manufacturing back to the U.S.