Betting on the Resurgence of U.S. Manufacturing: Bank of America Highlights Top ETFs
The ongoing focus on bolstering domestic manufacturing in the United States has sparked a growing interest among investors seeking to capitalize on this trend. Bank of America, recognizing this sentiment, has identified a select group of Exchange Traded Funds (ETFs) that provide investors with a diversified and targeted approach to investing in this burgeoning sector.
Key Takeaways:
- Focus on Diversification: Bank of America recommends ETFs that hold stocks across different sectors to capture the overall impact of the manufacturing rebound, as opposed to traditional sector funds that may not encompass the full scope of the theme.
- Top ETF Picks: The bank highlights First Trust RBA American Industrial Renaissance ETF (AIRR) and Global X US Infrastructure ETF (PAVE) as prime choices for investors seeking exposure to the U.S. manufacturing resurgence.
- Strong Performance: Both ETFs have demonstrated robust performance in recent years, with AIRR outperforming the S&P 500 over the past decade and PAVE boasting an average annualized return of over 20% in the past five years.
- Considerations: While AIRR boasts a longer track record and stronger risk-adjusted returns, it also carries a higher expense ratio. PAVE, on the other hand, offers a wider focus on infrastructure and a lower management fee.
Navigating the Resurgence: Why ETFs are the Preferred Choice
The renewed push towards domestic manufacturing, driven by a combination of trade policy, industry protection, and government investment, presents a compelling investment opportunity for investors seeking to participate in this economic growth. While the successes of these efforts might not be widely known, the potential for long-term growth is undeniable.
However, traditional sector funds often lack the breadth necessary to fully capture the multifaceted nature of the manufacturing resurgence. This is where ETFs, with their ability to hold stocks across various sectors, come into play.
"The agenda is well known: 1. near-shoring production via trade policy, 2. protecting new industries, 3. investment in construction & manufacturing, not just intellectual R&D. The successes are less known," said Jared Woodard, ETF strategist at Bank of America.
The First Trust RBA American Industrial Renaissance ETF (AIRR): A Focus on Growth and Innovation
Launched in 2014, the First Trust RBA American Industrial Renaissance ETF (AIRR) has established itself as a leading option for investors seeking exposure to the U.S. manufacturing renaissance. With over $1.4 billion in assets, it has consistently outpaced the S&P 500 over the past decade.
AIRR distinguishes itself with its strong focus on small and mid-cap companies involved in various aspects of manufacturing and infrastructure development. This strategy allows the fund to capture the growth potential of emerging and innovative companies within the sector.
"The fund has the most small and mid-cap exposure relative to other funds in our coverage. While AIRR has the highest expense ratio of the group, it has the best 5Y risk adjusted returns, " the Bank of America note said.
Notable Holdings:
- Mueller Industries: A major pipe manufacturer catering to diverse sectors like energy, water, and infrastructure.
- Granite Construction: A leading provider of infrastructure construction and engineering services, involved in road, bridge, and other critical projects.
Global X US Infrastructure ETF (PAVE): A Broader Perspective on Growth
The Global X US Infrastructure ETF (PAVE) offers a different approach to capturing the manufacturing boom, specifically targeting companies involved in infrastructure development and related activities.
Launched in 2017, the fund boasts a larger asset base of nearly $8 billion and a compelling performance record, averaging over 20% annualized return in the past five years. This robust performance is driven by the fund’s focus on a broad range of infrastructure-related sectors, including construction, engineering, manufacturing, and industrial transportation.
"The fund screens for companies that derive their revenue from construction, engineering, raw materials, related productions and equipment, and industrial transportation," the Bank of America note explained.
Key Holdings:
- Trane Technologies: A global leader in refrigeration and HVAC systems, playing a vital role in modernizing industrial processes and buildings.
- United Rentals: A leading provider of industrial equipment, construction services, and other essential resources for infrastructure development.
A Diversified Approach to Capture the Manufacturing Renaissance
Both AIRR and PAVE offer distinct yet compelling avenues for investors seeking to capitalize on the resurgence of U.S. manufacturing. AIRR, with its focus on smaller companies and emphasis on growth, might appeal to investors seeking higher potential returns, while PAVE, with its focus on broad infrastructure development and a lower management fee, could be a more attractive option for those seeking a diversified and cost-effective approach.
"The successes [of the manufacturing agenda] are less known, but the theme is well known, and ETFs are a good way to invest," said Woodard. Ultimately, the choice depends on individual investment goals and risk tolerance.
The Big Picture: Beyond the Immediate Returns
The rise of domestic manufacturing in the United States represents more than just an economic trend; it signifies a shift in geopolitical and industrial landscapes. The government’s focus on reshoring production, fostering new industries, and investing in critical infrastructure lays the groundwork for a more resilient and self-sufficient economy.
Investing in this trend through ETFs like AIRR and PAVE isn’t just about maximizing returns; it’s about supporting a broader vision for a stronger and more sustainable future for American manufacturing. As the successes of these initiatives become more evident, these ETFs could play a key role in attracting further investment and driving the growth of a revitalized U.S. manufacturing sector.
