US manufacturing ETFs gain assets as investors bet on ‘reshoring’ By Reuters

By Suzanne McGee

(Reuters) – Investors are flocking to exchange-traded funds focused on companies returning or expanding U.S. production and taking advantage of government subsidies.

About $2.25 billion flowed into a small group of ETFs, underscoring the so-called reshoring theme this year, bringing their total assets to a record $9.67 billion by the end of August.

“Companies continue to refer to reshoring as a long-term driver of their growth, and our goal is to find beneficiaries or enablers of this trend before the theme goes mainstream,” said Chris Semenuk, who oversees the Tema American ETF Reshoring, actively managed, launched. last year.

Its assets grew from $6 million in May 2023 to $101.5 million at the end of August. The fund is up nearly 16% year-to-date, compared with a 17.7% gain in .

Manufacturers have moved production to the United States to avoid supply chain potholes and tensions between Washington and Beijing that are drying up investment in China.

Congress approved more than $1 trillion in funding for new infrastructure projects at the end of 2021 and passed a bill that would provide another $200 billion for chipmaking next summer.

Several major corporate moves also helped spur interest, including Taiwan Semiconductor Manufacturing Co’s (TSMC) decision to increase the size of its investment in new Arizona manufacturing plants to $65 billion, or the federal government’s award of up to $500 million to Century Aluminum to build the first US aluminum smelter in 45 years.

BlackRock (NYSE: ) is the latest and largest ETF provider to compete for investors’ dollars as interest in the relocation theme is fueled by the central role the economy and job creation play in the US 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 on the latest episode of “Inside ETFs.” “It’s a rare area of ​​consensus on the aisle.”

Shares of the ETF have climbed 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 US manufacturing sector include Caterpillar (NYSE: ) and Eaton (NYSE:) Corp., which are up 16.4% and 27.6% year-to-date, respectively. The S&P 500 industrials sector, which is home to many of the companies whose shares are held by ETFs, is up 13.5% this year.

Certainly, an influx of weaker-than-expected economic data in recent months, including an unexpected drop in US manufacturing construction spending, has fueled concerns that US growth may be starting to slow. The Federal Reserve is expected to cut interest rates for the first time in years at its September 17-18 meeting in an attempt to ease monetary policy ahead of any potential economic slowdown.

At the same time, some stocks became more richly valued as the broader market rose. The industrials sector, for example, is trading at a forward price-earnings multiple of 26.7, compared with 19.2 a year ago.

“Attractively priced opportunities are few and far between; the kind of valuations we saw in early 2020 are gone,” said Jeff Muhlenkamp, ​​manager of the $249 million Muhlenkamp Fund, a mutual fund.

Nor, he added, is relocating an automatic ticket to above-average returns. Companies that expand or “repatriate” manufacturing facilities to the US will likely find themselves facing higher labor and raw material costs.

Whether this will slow the strong growth the funds have seen this year remains to be seen. Assets in the $1.5 billion First Trust RBA American Industrial Renaissance ETF, which debuted in 2014, have tripled over the past 12 months, while those in the Global X US Infrastructure Development ETF of $8.04 billion, launched in 2017, is up 50% over the same period, according to Morningstar.

The latter fund has also returned 26.6% year-to-date, beating the S&P 500, according to LSEG.

Jacobs sees this as just the beginning.

“Otherwise, this is more of an entry point for investors,” he said.