Investors are flocking to exchange traded funds centered on businesses that are revitalizing or increasing production within the U.S. while capitalizing on government incentives.
This year, approximately $2.25 billion has surged into a select group of ETFs emphasizing the so-called reshoring narrative, elevating their total assets to an unprecedented $9.67 billion by the end of August.
“Firms continually highlight reshoring as a sustainable catalyst for their growth, and we aim to identify the beneficiaries or facilitators of that trend prior to its mainstream adoption,” stated Chris Semenuk, who manages the actively run Tema American Reshoring ETF, introduced last year.
The ETF’s assets have surged from $6 million in May 2023 to $101.5 million by the end of August. The fund has risen nearly 16% this year, compared to a 17.7% increase in the S&P 500.
Manufacturers are relocating production back to the United States to circumvent supply chain disruptions and mitigate tensions between Washington and Beijing, which are hampering investment in China.
In late 2021, Congress authorized over $1 trillion for new infrastructure initiatives and passed legislation to allocate an additional $200 billion for semiconductor manufacturing the following summer.
Noteworthy corporate decisions have also sparked interest, such as Taiwan Semiconductor Manufacturing Co’s (TSMC) choice to increase its investment in new fabrication plants in Arizona to $65 billion, or the federal government’s potential granting of up to $500 million to Century Aluminium for establishing the first aluminum smelter in the U.S. in 45 years.
BlackRock has emerged as the latest and largest provider of ETFs vying for investor interest as enthusiasm for the reshoring theme is driven by the pivotal role that the economy and job creation play in the U.S. presidential race. It introduced the iShares U.S. Manufacturing ETF in July.
“These stocks stand to gain regardless of which party wins the election,” Jay Jacobs, head of thematic and active ETFs at BlackRock, remarked to Reuters in the latest episode of “Inside ETFs.” “It represents a rare area of agreement across the aisle.”
The ETF’s shares have risen 3.5% over the past month, in contrast to a roughly 0.9% increase for the S&P 500, as per LSEG. The new BlackRock ETF has now amassed nearly $6 million in assets.
Noteworthy performers in the U.S. manufacturing arena include Caterpillar and Eaton Corp., with gains of 16.4% and 27.6% year-to-date, respectively. The S&P 500 industrial sector, home to many firms whose shares are included in the ETFs, has increased by 13.5% this year.
However, a wave of disappointing economic data in recent months, including an unanticipated decline in U.S. manufacturing construction spending, has raised doubts about a potential softening of U.S. growth. The Federal Reserve is predicted to lower interest rates for the first time in years during its meeting on Sep. 17-18 in an effort to relax monetary policy ahead of any possible economic downturn.
Simultaneously, some stocks have become more expensively valued as the wider market has advanced. The industrial sector, for instance, is trading at a forward price-to-earnings ratio of 26.7, compared to 19.2 a year ago.
