Dawn Global
Reshoring is a growing theme in the US economy.
Former President Donald Trump's tariffs on imported goods pushed companies to start manufacturing products in the US, and then COVID-19's disruption of global supply chains accelerated this trend. Today, both major parties seem to be somewhat protectionist, a shift from the NAFTA days of the 1990s that saw jobs outsourced for cheaper labor.
Sensing the change, Tema ETFs CEO Maurits Pot launched the Tema American Reshoring ETF (RSHO) in May 2023. Since coming to market, the fund has smashed the S&P 500, returning 41.5% compared to the index's 34% gain over that time.
"People don't want to take supply chain risk," Pot said. "People don't want to have their car manufactured in China, and I think there's a view that we want to localize benefits more than globalize them in the world we live in today."
One attractive part about investing in the reshoring theme is the long-term certainty that comes with the high costs of moving manufacturing back to the US, Pot said.
"These projects are so big that when we make the commitment, we really need to double down," he said. "These are $40 billion projects."
The scale and process of reshoring will also take time — in Pots' estimate, at least a decade — meaning he thinks the theme has room to run.
A top beneficiary of the reshoring trend is industrials stocks and firms that will need to build out the capacity for more manufacturing in the US, Pot said.
But choosing stocks for the fund is not just a matter of identifying companies set to benefit from reshoring. According to Pot, there are around 200 firms that fit that description. They narrow that down to around 30 or 40 by making sure valuations are attractive and that the firms are high quality, which for Pot means they have low leverage and are "prudent" with capital allocation, spending their profits wisely.
In a call with Business Insider last week, Pot highlighted five holdings in RSHO that he's particularly bullish on.
One stock Pot really likes is Rockwell Automation (ROK), whose automation equipment helps factories boost production. With manufacturing within the US set to increase from reshoring, Pot sees it as a clear beneficiary.
Second, electrical equipment manufacturer Eaton (ETN) should also profit from the manufacturing surge since US production facilities, by law, rely largely on electricity, Pot said.
"Eaton is the poster child of the reshoring trend. They manufacture power management products and find their electrical content responsible account for 3-5% of megaprojects," a recent Tema whitepaper said.
Next is Clean Harbors (CLH), which deals with hazardous waste through incineration. According to Pot, Clean Harbors make up 70% of the hazardous waste incineration market. Since more manufacturing means higher hazardous waste amounts, CLH should get a boost in business, he said.
Fourth, titanium supplier Allegheny Technologies (ATI) is set to benefit from sanctions on Russia and tariffs on China, which are big titanium sources. ATI is boosting production capacity to make up for the current shortage in the US, Pot said.
"ATI is gaining significant market share as a supplier to Boeing, the US division of Airbus and all US defense contractors," Pot said.
Finally, Pot said Vulcan Materials (VMC), which owns rock quarries around the US, will benefit from reshoring as demand for new commercial buildings and homes surges in areas where manufacturing is set to pick up. Vulcan has quarries in almost two dozen states, including Kentucky, Tennessee, Arizona, North Carolina, and more — many of which Pot believes will benefit from the reshoring trend.
