Sept 13 (Askume) – Investors are flocking to exchange-traded funds focused on companies that are resuming or expanding production in the United States and taking advantage of government subsidies.
A small group of ETFs highlighting the so-called resurgence theme have attracted about $2.25 billion this year, pushing their total assets to a record $9.67 billion at the end of August.
“Companies see reshoring as a long-term driver of their growth, and our goal is to reverse this trend,” said Chris Semenuk, head of the actively managed TEMA American Reshoring ETF (RSHOP.P) launched last year. Or find supporters before it becomes mainstream .
Its assets have grown from $6 million in May 2023 to $101.5 million at the end of August. The fund is up about 16% so far this year, while the S&P 500 has gained 17.7%.
Manufacturers are shifting production to the United States to avoid supply chain issues and tensions between Washington and Beijing, driving down investment in China.
Congress approved and passed a bill to provide over $1 trillion in new infrastructure project funding in late 2021$200 billion will be made available for chip manufacturing next summer .
Several high-profile corporate moves have also helped boost interest, including Taiwan Semiconductor Manufacturing Co. (TSMC) (2330.TW) building a new manufacturing plant in Arizona.The decision to boost the investment to about $65 billion includes the federal government awarding up to $500 million to Century Aluminum (CENX.O) to build the first U.S. aluminum smelter in 45 years .
BlackRock is the latest and largest ETF provider competing for investors’ money, as the economy and job creation playing a central role in the U.S. presidential campaign have fueled interest in the recovery theme. It launched in JulyiShares US Manufacturing ETF (MADE.P) launched.
“These stocks are likely to benefit no matter which party wins the election, ” Jay Jacobs, head of thematic and active ETFs at BlackRock, told Askume in the latest episode of “Inside Rare Field.”
Shares of the ETF have gained about 3.5% over the past 30 days, while the S&P 500 index (.SPX) has gained about 0.9%, according to LSEG data.The new BlackRock fund currently has assets of about $6 million.
Strong U.S. manufacturing companies include Caterpillar (CAT.N) and Eaton Corp. (ETN.N) , which are up 16.4% and 27.6%, respectively, so far this year. The S&P 500 industrial sector, which includes many of the companies the ETF holds, is up 13.5% this year.
Of course, recent months have seen weaker-than-expected economic data, including from the United States . An unexpected drop in spending on manufacturing, including construction , raised concerns about the US economy. Growth may slow. The Fed is expected to cut interest rates for the first time in several years at its September 17-18 meeting in an effort to ease monetary policy ahead of any potential economic slowdown.
Additionally, the broader market rally has caused some stocks to become overvalued. For example, the industrial sector’s forward P/E ratio is 26.7 times, up from 19.2 times a year ago.
Jeff Muhlenkamp, manager of the $249 million mutual fund Muhlenkamp, said: “Attractively priced opportunities are rare; the kind of valuations we saw in early 2020 no longer exist.”
He also said there is no way to achieve above-average returns through reshoring. Companies seeking to expand or “bring back” manufacturing facilities to the United States may face higher labor and raw material costs.
It remains to be seen whether that will slow the fund’s strong growth this year.Assets in the $1.5 billion First Trust RBA American Industrial Renaissance ETF (AIRR.O) , launched in 2014, have tripled in the past 12 months, while assets in the $8.04 billion Global X ETF, launched in 2017, have tripled, according to Morningstar data U.S. infrastructure development assets .
The fund has returned 26.6% so far this year, beating the S&P 500, according to the London Stock Exchange.
Jacobs believes this is just the beginning.
“This is the entry point for investors,” he said.
