The recent surge in American reshoring, the process of bringing back manufacturing and production activities to the United States from overseas, has gained significant momentum. This trend has been driven by various factors, including the secular shift in global economic dynamics, the industrial renaissance, bipartisan support, competitive advantage, and pure exposure.
It is widely believed that North America and Western Europe are high-cost nations and Latin America, Eastern Europe, and most of Asia – especially China – are low-cost destinations. This difference is seen as the reason for the rise in manufacturing offshoring in recent times.
Below we explore the factors and highlights the investment opportunities arising from the American reshoring movement.
Secular Trend: Rising labor costs and demand for local production drive reshoring, benefiting companies through improved response times, quality control, and reduced transportation costs. Per ILO’s global wage report, China’s wage growth was 7.6% in 2021. The same was for Mexico was 8.2% growth in 2020 and a decline of 0.5% in 2021. The same was up 4.1% in 2020, flat in 2021 for the United States.
Bipartisan Support: Political backing for reshoring efforts provides a stable investment environment, with tax incentives, streamlined regulations, and infrastructure investment enhancing its appeal. President Biden focus on the principle of “Build Back Better America” while former president Trump followed a “America First” ideology. These principles focused on home-grown stuffs and articles.
Miscellaneous Factors: Apart from lower wage growth, less union powers, and government incentives are the other factors to drive manufacturing reshoring. Plus, U.S.-China trade war has been common knowledge to all by now. Growing geopolitical tensions is a key factor to rely on its own strength and people and technology.
Industrial Renaissance: The United States is experiencing an industrial renaissance, driven by technological advancements and innovation. Industries like advanced manufacturing, robotics, artificial intelligence, and automation are revolutionizing the manufacturing landscape, making it more cost-effective and efficient to produce domestically. This resurgence has the potential to create significant investment opportunities across sectors such as aerospace, automotive, electronics, and pharmaceuticals.
Competitive Advantage: Reshoring grants companies increased control over supply chains, better product quality, and protection of intellectual property, minimizing risks associated with global trade disputes and tariff uncertainties.
ETFs in Focus
Funds discussed below offer targeted bets on the U.S. manufacturing reshoring and tapping these can help investors garner profits if confidence in the bloc continues to rise.
American Reshoring ETF RSHO
The fund hit the market on May 11, 2023. The actively managed Tema American Reshoring ETF looks to provide long-term growth by investing in companies that stand to benefit from manufacturing moving back to US shores.
Linde plc (5.05%), Vulcan Matls Co (5.01%) and Applied Indl Technologies Inc Com (4.97%) hold the top three spots in the fund. Country-wise, the fund is heavy on United States, followed by Ireland and Britain. Sector-wise, the fund is heavy on Industrials and Materials. The net expense ratio of the fund is 0.75%.
Invesco S&P SmallCap Industrials Portfolio PSCI
The fund can also act as a great bet. As the name suggests, the fund gives exposure to small-cap stocks belonging to the U.S. industrial sector. Small-cap stocks are generally more domestically-focused. The Zacks Rank #2 (Buy) ETF holds 93 stocks in focus. The fund charges 29 bps in fees. No stock accounts for more than 3.43% of the fund.
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