By Suzanne McGee
(Reuters) – Investors are pouring into exchange-traded funds that focus on companies that are reviving or expanding U.S. manufacturing and benefiting from government subsidies.
About $2.25 billion has flowed into a small group of ETFs emphasizing the so-called reshoring theme this year, bringing their total assets to a record $9.67 billion at the end of August.
“Companies continue to view reshoring as a long-term driver of their growth, and our goal is to find beneficiaries or enablers of that trend before that theme becomes mainstream,” said Chris Semenuk, who oversees the actively managed Tema American Reshoring ETF, launched last year.
Assets have grown from $6 million in May 2023 to $101.5 million at the end of August. The fund is up nearly 16% this year, compared with a 17.7% gain in the .
Manufacturers have moved production to the United States to avoid supply chain disruptions and tensions between Washington and Beijing, which are drying up investment in China.
Congress approved more than $1 trillion in funding for new infrastructure projects in late 2021 and passed a bill that will provide another $200 billion for chip production next summer.
Several high-profile industry moves have also helped stimulate interest, including Taiwan Semiconductor Manufacturing Co’s (TSMC) decision to increase the size of its investments in new factories in Arizona to $65 billion or awarding up to $500 million from the federal government to Century Aluminum to build the first aluminum smelter in the US in 45 years.
BlackRock (NYSE:) is the latest and largest of the ETF providers vying for investor dollars, as interest in the reshoring theme is fueled by the central role the economy and job creation play in the U.S. presidential race. It launched the iShares US Manufacturing ETF in July.
“These stocks could benefit whichever party wins the election,” Jay Jacobs, head of thematic and active ETFs at BlackRock, told Reuters in the latest episode of “Inside ETFs.” “It’s a rare area of consensus on the other side of the aisle.”
Shares of the ETF are up 3.5% over the past 30 days, compared with a gain of about 0.9% for the S&P 500, according to LSEG. The new BlackRock fund now has nearly $6 million in assets.
Strong performers in the U.S. manufacturing sector include Caterpillar (NYSE:) and Eaton (NYSE:) Corp., which are up 16.4% and 27.6% respectively this year. The industrials sector of the S&P 500, home to many of the companies whose shares are held by the ETFs, is up 13.5% this year.
To be fair, an influx of weaker-than-expected economic data in recent months, including an unexpected dip in U.S. manufacturing construction spending, has raised concerns that U.S. growth may be starting to weaken. The Federal Reserve is expected to cut interest rates for the first time in years at its September 17-18 meeting in an effort to ease monetary policy ahead of a possible economic slowdown.
At the same time, some stocks have become richer in valuation as the broader market has recovered. The industrial sector, for example, trades at a price-to-earnings ratio of 26.7, compared to 19.2 a year ago.
“Attractively priced opportunities are few and far between; the kind of valuations we saw in early 2020 are no longer there,” said Jeff Muhlenkamp, manager of the Muhlenkamp Fund, a $249 million mutual fund.
Nor, he added, is automatic reward for above-average returns. Companies that expand or “repatriate” manufacturing facilities to the US will likely experience higher labor and raw material costs.
Whether the strong growth the funds have experienced this year will slow remains to be seen. Assets in the $1.5 billion First Trust RBA American Industrial Renaissance ETF, which debuted in 2014, have tripled in the past 12 months, while those in the $8.04 billion Global , have grown by 50%. during the same period, according to Morningstar.
The latter fund has also returned 26.6% year to date, which is better than the S&P 500, according to LSEG.
Jacobs sees this as just the beginning.
“If anything, this is more of an entry point for investors,” he said.
