Reshoring Riches: Investing in Made in America 2.0

Key Points

• Strategic shifts in global supply chains are creating unique prospects for investors looking to capitalize on the growth of American manufacturing and innovation.
• The convergence of reshoring and cutting-edge technologies like robotics and automation is creating a new era of domestic production and economic strength.
• By considering broad exposure to core industrial sectors and targeted investments in automation, investors can position themselves to benefit from the current manufacturing sector terrain.

 

Geopolitical instability and supply chain vulnerabilities are changing the globalized world and its once-reliable efficiency. This has ushered in a new era of "Made in America," where resilience and advanced technology are key. As a result, companies are reevaluating their traditional manufacturing strategies, recognizing the strategic advantages of reshoring, onshoring, and friend-shoring. This shift prioritizes security and control over purely cost-driven global supply chains. "Made in America 2.0" represents a compelling investment opportunity driven by the resurgence of domestic manufacturing. This transformative trend, fueled by advanced technologies and strategic adaptations, is reshaping the future of production and presents a lucrative opportunity for investors.

The Reshoring Imperative: A Shift in Priorities

The COVID-19 pandemic, rising trade tensions, and geopolitical instability have revealed the fragility of intricate global networks and sprawling supply chains that prioritize cost minimization. As a result, businesses must shift their focus from unchecked globalization towards building resilience and security in their operations.

These recent events highlight the vulnerabilities of relying on distant suppliers and have encouraged businesses to re-evaluate their total cost of ownership. Companies are now accounting for previously overlooked expenses, such as shipping, longer lead times, inventory holding costs, and quality control. This reevaluation has led to a stronger case for domestic production, where control, quality, and responsiveness are prioritized over the lowest possible labor costs. 

The rise of automation and advanced technologies is further driving this trend, reducing the reliance on low-cost overseas labor and making domestic manufacturing more competitive. Government incentives, tax breaks, and infrastructure investments designed to support and encourage reshoring further propel this shift. 

This combination of factors indicates that reshoring is more than a temporary reaction but rather a long-term shift in manufacturing strategies that is already beginning to impact the investment horizon. The current reshoring trend promises not only increased resilience but also the creation of high-skilled jobs in the US manufacturing sector and the potential to reduce trade deficits, all while strengthening national security and bolstering the domestic economy. 

Investing in the Reshoring Theme: An ETF Approach

Capitalizing on the complex reshoring phenomenon requires a strategic approach. Exchange-traded funds (ETFs) provide investors with the most practical and diversified way to participate in this emerging trend. They offer a means to gain exposure to a broad range of companies poised to benefit from this movement without the necessity of in-depth knowledge of individual company strategies. 

Broad Exposure to the Resurgent US Industrial Sector

The Industrial Select Sector SPDR Fund NYSEARCA: XLI offers investors access to a broad spectrum of companies within the U.S. industrial sector. This ETF tracks the performance of the Industrial Select Sector Index, encompassing a wide range of companies representing a core group of American industrials that stand to benefit from the shift towards domestic production. With a low expense ratio of 0.09%, XLI provides cost-effective access to these key sectors. 

This ETF has amassed a substantial asset base of $22.08 billion and a market capitalization of $20.43 billion, indicating strong investor confidence in its approach. The portfolio composition is integral to the reshoring trend, with 16.4% of its holdings allocated to the machinery sector, 12.8% to aerospace and defense, and 7.5% to transportation infrastructure. As companies expand domestic manufacturing, increased demand for equipment and transport will become necessary, creating a substantial positive environment for XLI’s holdings. 

Recent market data indicates a 52-week price range of $112.86 to $144.51, with a current price as of January 31, 2025, near the top of that range.  For investors seeking regular income, the Industrial Select Sector SPDR Fund ETF’s dividend is an attractive option, as it provides an annual dividend payment of $1.61 per share, with quarterly payments of $0.4213, resulting in a dividend yield of 1.16%.

Investing in the Enablers of Reshoring

The ROBO Global Robotics and Automation Index ETF NYSEARCA: ROBO provides targeted exposure to the global robotics, automation, and artificial intelligence (AI) industries. With an expense ratio of 0.95%, ROBO provides access to a broad spectrum of companies that develop and deploy essential technologies that are crucial to successful reshoring initiatives. 

ROBO, with $1.08 billion assets under management and a market capitalization of $1.35 billion, is positioned to enable investors to benefit from the growth of technologies that are shaping the future of manufacturing. The fund's diversified holdings, with 40.2% in industrials, 35.6% in technology, and 5.7% in health care, highlight the wide range of applications for automation in the new economy and demonstrate how these technologies are spread across different sectors.

Practical Portfolio Implications

XLI, with its diversified holdings across various US industrial sectors, presents a balanced option for investors who prefer a moderate level of risk. This fund's broad exposure can help mitigate volatility while still capturing potential gains from the overall industrial sector. On the other hand, ROBO, which focuses on robotics and automation companies, is better suited for investors who are willing to accept higher risk in exchange for the potential for higher returns. This fund targets innovative and emerging technologies, which can experience rapid growth but also greater fluctuations in value.

As an alternative to investing in these ETFs, investors with the time and expertise to research individual companies could consider building a portfolio of stocks that directly benefit from the growth of robotics, automation, and AI. Ultimately, the best investment strategy will depend on your financial goals, risk tolerance, and investment horizon. 

"Made in America 2.0," driven by reshoring and automation, is causing a significant economic shift and presents long-term growth opportunities for investors seeking exposure to the evolving domestic manufacturing landscape. Although this trend will unfold over an extended period, current economic conditions and market sentiment suggest that participation in it may offer compelling investment opportunities.