The start of this decade has been marked by impactful events which have unleashed a wave of change that is increasingly touching the American industrial complex through reshoring. As outlined in our introduction to American reshoring blog, reshoring is a structural trend acting through multiple verticals, with strong tailwinds from bipartisan government support and deglobalization.
Reshoring is not solely an infrastructure play
Reshoring, though ultimately about bringing jobs and investment back to America, is a dynamic process that impacts multiple industries in different ways. While reshoring is often conflated with American infrastructure, it is a megatrend that extends beyond that. Rebuilding infrastructure, like roads and bridges, is an important short-term first order enabler of the reshoring process but isn’t a key driver or main beneficiary. For example, a classic infrastructure play like the electricity utility Sempra [1] in California and Texas, has no identifiable benefit from reshoring. Conversely, API group[1] is not an infrastructure company, but we believe that it benefits from reshoring over the very long term through the inspection services it provides to government and private installations. Infrastructure is also exposed to broader factors beyond reshoring. As a result, we believe a pure-play infrastructure investment is not a precise way to achieve targeted exposure to the reshoring theme.
Industrialization and automation are at the core of reshoring
Reshoring starts on the American factory floor. Manufacturing capacity has been severely neglected since 2000, held back by lack of investment at the cost of jobs and technology leadership.
This has started to change rapidly in the last 24 months, with a ~40-year record US manufacturing job growth in 2022 [2] , unprecedented levels of manufacturing construction spending [3] , and decade-low share of Chinese goods as a percentage of US imports [4] . Many companies that we speak to consistently refer to reshoring as being a multi-year opportunity that could change the secular growth trajectory of their industries.
As US re-industrialization accelerates, automation starts to play a crucial role in transforming production processes. Automation technology has the potential to enable companies to achieve higher levels of productivity and improved product quality. All this extends well beyond simply bricks and mortar infrastructure. Reshoring is also spreading to more sectors including business equipment, autos, electrical supplies and non-energy materials.
How Tema identifies reshoring beneficiaries
The landscape of reshoring investment opportunities is wide and varied and requires a bottom-up approach. Ideas include all types of manufacturing equipment as well as related process, discrete and hybrid automation. It also includes suppliers and service providers that add value to the manufacturing process such as fasteners, compressors, and robotics as well as services that focus on factory safety and inspections. We also consider construction of the actual factory structure along with entry systems and logistics services that are necessary to transport goods into and out of the manufacturing facility to be within the scope of potential investment opportunities.
Bottom Line
Thematic purity is core to Tema’s investment process, and our focused approach to reshoring underscores why one cannot access this megatrend through just US infrastructure.
[1] Sempra is not a holding of the RSHO ETF. API Group represents 2% of the portfolio weight as of 13/06/2023. For a full list of fund holdings click here
[2] Source: Bureau Labor Statistics, The job growth rate during 2021-2022 was 6.58%. The last time a comparable growth rate was higher was in 1979.
[3] Source: Congressional budget office, “The Budget and Economic Outlook: 2023 to 2033”, February 2023
[4] Source: Census Bureau & Kearney reshoring index, based on 12-month rolling sum going to April 2023.
Risk Information
Before investing, carefully consider the Fund’s investment objective, risks, charges, and expenses contained in the prospectus available at www.temaetfs.com. Read carefully before investing.
Important Risks
Investing involves risk including possible loss of principal. There is no guarantee the adviser’s investment strategy will be successful.
Sector Focus Risk: The Fund may invest a significant portion of its assets in one or more sectors, including Industrials, Materials and Utilities, and thus will be more susceptible to the risks affecting those sectors than funds that have more diversified holdings across several sectors. The success of the Fund’s investment strategy depends in part on the ability of the companies in which it invests to reshore or onshore services to the United States.
Companies may face significant legal, financial and political headwinds in the reshoring or onshoring of jobs into the United States, and these factors may be detrimental to performance. Industrial and Utilities sector companies will likewise be subject to the risks of Government regulation, world events, exchange rates and economic conditions, technological developments and liabilities for environmental damage and general civil liabilities. In addition, many materials companies are significantly affected by the level and volatility of commodity prices, exchange rates, import controls, worldwide competition, environmental policies and consumer demand.
Investing in foreign and emerging markets involves risks relating to political, economic, or regulatory conditions not associated with investments in U.S. securities and instruments. In addition, the fund is exposed to currency risk.
Tema Global Limited serves as the investment adviser to Tema American Reshoring ETF (the “Fund” ), and NEOS Investments, LLC serves as a sub adviser to the Funds. The Funds are distributed by Foreside Fund Services LLC, which is not affiliated with Tema Global Limited nor NEOS Investments, LLC. Check the background of Foreside on FINRA’s BrokerCheck.
For inquiries: info@temaetfs.com
