WEBVTT NOTE This file was generated by Descript 00:00:00.170 --> 00:00:04.250 Tariffs and bringing back more jobs to the United States is a central issue in 00:00:04.250 --> 00:00:08.189 the upcoming presidential debates, and not surprisingly, there's ETFs for that. 00:00:08.200 --> 00:00:09.010 That's why we're here. 00:00:09.130 --> 00:00:11.550 Let's talk to a couple of people in charge of them. 00:00:11.580 --> 00:00:15.299 Maurice Pott is CEO and founder of Tema, an investment management company 00:00:15.299 --> 00:00:19.970 that runs the American reshoring ETF, the symbols are S H O, which invests in 00:00:19.970 --> 00:00:23.670 industrial and infrastructure companies at the heart of the American manufacturing 00:00:23.680 --> 00:00:25.619 and re industrialization boom. 00:00:25.910 --> 00:00:27.000 Also joining us here at the N. 00:00:27.000 --> 00:00:27.190 Y. 00:00:27.190 --> 00:00:27.280 S. 00:00:27.320 --> 00:00:32.109 C., Todd Sohn, ETF and technical strategist for Strategus. 00:00:32.110 --> 00:00:35.300 Maritz, tell us a little bit about what's in this ETF and how is the 00:00:35.300 --> 00:00:38.289 election driving this particular theme? 00:00:38.750 --> 00:00:39.340 Reshoring. 00:00:39.479 --> 00:00:41.019 Thanks, Paul, for having me on the show today. 00:00:41.640 --> 00:00:42.549 So a really good question. 00:00:42.549 --> 00:00:46.500 The reshoring ETF, investing companies at the heart of the reindustrialization. 00:00:47.875 --> 00:00:51.614 Companies bring back jobs, bring back manufacturing, bring back innovation, 00:00:51.934 --> 00:00:54.795 and ultimately also driving the re infrastructure spend in the U. 00:00:54.795 --> 00:00:55.095 S. 00:00:55.114 --> 00:00:58.394 You're seeing infrastructure spend at a 30 year high, and that infrastructure 00:00:58.394 --> 00:01:01.744 spend is required to enable people to invest in manufacturing. 00:01:01.745 --> 00:01:04.844 You're not going to invest billions in a plant if you're not comfortable that 00:01:04.844 --> 00:01:08.164 there's infrastructure to support that plant development, also the, the, the 00:01:08.164 --> 00:01:09.465 manufacturing that comes out of the plant. 00:01:09.965 --> 00:01:10.925 So this is a big trend. 00:01:11.135 --> 00:01:12.565 Some would call it deglobalization. 00:01:12.865 --> 00:01:16.510 When the early innings Regulation and bills such as the CHIPS Act, 00:01:16.560 --> 00:01:20.410 IRA Act have helped this, but really at the heart of it is job creation, 00:01:20.420 --> 00:01:24.609 manufacturing and reshoring, bringing back local manufacturing jobs. 00:01:24.729 --> 00:01:26.190 So I'm looking at your top picks here. 00:01:26.200 --> 00:01:29.790 Applied Industrial Technologies and Eaton are the two top ones. 00:01:29.830 --> 00:01:32.799 How are they going to benefit from reshoring? 00:01:32.800 --> 00:01:36.580 So Applied Industrial Automation is really focused on the automation part. 00:01:36.580 --> 00:01:39.750 So we think this wave of industrialization is actually going to be a lot cleaner 00:01:40.040 --> 00:01:41.440 than previous industrialization. 00:01:41.710 --> 00:01:43.100 It's going to be focused on efficiency. 00:01:43.300 --> 00:01:46.000 It's going to be focused on automation and also a degree of sustainability. 00:01:46.300 --> 00:01:49.720 When you think about Eaton, Eaton is the heart of the electrification space. 00:01:49.919 --> 00:01:52.690 Distributing, installing, providing electricity. 00:01:53.039 --> 00:01:55.910 Electricity demand is going up as manufacturing goes up. 00:01:56.259 --> 00:01:59.020 We see this as a structural growth opportunity. 00:01:59.310 --> 00:02:02.440 The CEO of Eaton mentioned that he expects the end market to 00:02:02.440 --> 00:02:04.149 grow 2x what it did historically. 00:02:04.649 --> 00:02:07.170 That's staggering for an industry such as electrification, which 00:02:07.170 --> 00:02:08.060 has been around for decades. 00:02:08.600 --> 00:02:12.480 You know, Todd, we, uh, you and I talk about these thematic ETFs. 00:02:12.510 --> 00:02:15.560 We have seen these thematic ETFs come and go over the years. 00:02:15.949 --> 00:02:18.810 Uh, here we have one that seems relevant. 00:02:18.890 --> 00:02:21.030 Reassuring, does this one have any staying power? 00:02:21.180 --> 00:02:22.489 So, I'll give you a stat. 00:02:22.500 --> 00:02:26.480 The industrial sector 30 years ago was 16 percent of the S& P 500. 00:02:26.830 --> 00:02:28.040 It's been cut in half since. 00:02:28.080 --> 00:02:29.050 It's only 8 percent now. 00:02:29.050 --> 00:02:30.610 It's roughly the size of Microsoft. 00:02:31.130 --> 00:02:34.190 And so if I'm going to play the industrials in a thematic way, I like 00:02:34.190 --> 00:02:36.640 the route of going active, right? 00:02:36.640 --> 00:02:39.809 And a more concentrated, perhaps sustainable theme, like 00:02:39.810 --> 00:02:41.430 Moritz is talking about here. 00:02:41.430 --> 00:02:46.220 So I do think there is staying power here as opposed to some of the fads we've seen 00:02:46.220 --> 00:02:48.120 in thematic space, particularly those. 00:02:48.495 --> 00:02:50.725 That are a little bit more tech and growth oriented. 00:02:50.725 --> 00:02:52.565 If I wanted tech and growth exposure, I'd just get that 00:02:52.565 --> 00:02:54.595 from the QQQ or the S& P 500. 00:02:54.605 --> 00:02:58.174 So, I like the idea of going the industrial route for thematic overall. 00:02:58.215 --> 00:03:01.354 Part of the problem, and you and I have talked about this, part of the 00:03:01.354 --> 00:03:05.285 problem is it's difficult to get concentration in the theme, folks. 00:03:05.294 --> 00:03:06.515 So we're dealing with reassuring. 00:03:06.515 --> 00:03:11.250 So, for example, Eaton, for example, has moved up last year and this year, 00:03:11.560 --> 00:03:15.839 largely because power supplies is a big factor in AI and in data centers. 00:03:16.049 --> 00:03:18.369 That's a different theme, though, than, than reshoring. 00:03:18.379 --> 00:03:19.879 See, that's the problem I have. 00:03:20.040 --> 00:03:24.019 How do you get the concentration in reshoring when Eaton 00:03:24.019 --> 00:03:25.560 is a really, a big story? 00:03:25.759 --> 00:03:28.250 It's partly reshoring, but there's other things going on here. 00:03:28.339 --> 00:03:30.980 Yeah, yeah, I think ultimately it's up to the manager, right? 00:03:30.989 --> 00:03:36.100 Do they feel that, a stock like Eaton or any of these other mid cap industrials 00:03:36.119 --> 00:03:37.529 can fit into this reshoring thing. 00:03:37.890 --> 00:03:41.779 The common investor is going to have no idea what many of these perhaps 00:03:41.829 --> 00:03:45.369 flyover industrial stocks, and I say flyover because they're probably based 00:03:45.369 --> 00:03:47.869 in the Midwest, what they do, right? 00:03:47.869 --> 00:03:49.750 They're focused on big tech. 00:03:50.239 --> 00:03:54.420 So you need that expertise in the ETF wrapper to help find the winning stocks 00:03:54.489 --> 00:03:56.040 and concentrate on that exposure. 00:03:56.600 --> 00:04:00.170 Maureen, you and I had talked before this when I was chatting you about it, 00:04:00.170 --> 00:04:04.275 and it seems like there are Advantages and disadvantages to onshoring. 00:04:04.285 --> 00:04:06.825 We had talked about some of the benefits here to onshoring. 00:04:07.304 --> 00:04:10.974 Greater control over production, reducing supply chain risk, 00:04:10.974 --> 00:04:12.595 lower transportation costs. 00:04:12.625 --> 00:04:15.584 It seems that there are obvious benefits here. 00:04:15.644 --> 00:04:19.605 Um, to what extent today are we actually seeing any of these 00:04:19.804 --> 00:04:21.284 benefits actually occurring? 00:04:21.644 --> 00:04:24.865 We still think we're in the early stages of the benefits being seen. 00:04:24.865 --> 00:04:28.065 So about 70 percent of American manufacturers reported 00:04:28.075 --> 00:04:29.164 being involved in reshoring. 00:04:29.505 --> 00:04:33.295 95 percent of those report a positive experience with Rishoren so far. 00:04:33.745 --> 00:04:36.195 So we're still in the early years of what we think is going 00:04:36.195 --> 00:04:37.505 to be a multi decade trend. 00:04:37.784 --> 00:04:40.795 Especially given the deficit that has certainly built up in the country in 00:04:40.795 --> 00:04:42.535 the infrastructure manufacturing space. 00:04:42.925 --> 00:04:45.624 So we don't think that the, we're not concerned about runway. 00:04:45.935 --> 00:04:48.519 We're concerned about finding the right companies, managing them the right ways. 00:04:48.849 --> 00:04:50.849 Focusing on sectors that we think are structurally going 00:04:50.849 --> 00:04:52.270 to benefit from this big trend. 00:04:52.570 --> 00:04:56.130 And yet, uh, Todd, I see obvious disadvantages here. 00:04:56.130 --> 00:04:58.810 First off, this is de globalization, essentially. 00:04:59.049 --> 00:05:02.190 Globalization, no matter what any of you thought about, had a lot of benefits. 00:05:02.440 --> 00:05:06.669 Concentration of supply chain, reduced inflation, uh, 00:05:06.719 --> 00:05:08.940 increased overall efficiency. 00:05:09.479 --> 00:05:14.940 Um, uh, we could potentially have higher labor costs as a result of this. 00:05:15.359 --> 00:05:18.130 Um, we could have a higher upfront investment cost. 00:05:18.729 --> 00:05:21.789 Um, we obviously gonna have some supply chain disruption. 00:05:21.789 --> 00:05:26.169 Well, that was a big issue during covid, of course, uh, and reduced economy of 00:05:26.169 --> 00:05:28.140 scales and potentially higher inflation. 00:05:28.150 --> 00:05:30.079 So I'm not denying what he's saying. 00:05:30.079 --> 00:05:34.400 And I understand that there are national security issues, for example, around some 00:05:34.739 --> 00:05:39.000 on shoring firm on shoring industries like pharmaceuticals or semiconductors. 00:05:39.229 --> 00:05:42.890 But this is the globalization and there are downsides to this right now. 00:05:43.855 --> 00:05:50.215 I think the risk is this brings back inflation in a really bad way, right? 00:05:50.215 --> 00:05:52.905 You met, you mentioned inflation and what the after effects of this could be. 00:05:53.775 --> 00:05:57.725 I don't think many investors and many just common Americans don't want to 00:05:57.725 --> 00:06:00.534 go through what we experienced in 2022 when you had inflation go up 00:06:00.534 --> 00:06:03.585 to 9%, uh, year over year, right? 00:06:03.625 --> 00:06:08.105 That's going to have really bad effects on investor psychology and even on 00:06:08.105 --> 00:06:09.445 just human beings in general, right? 00:06:09.445 --> 00:06:11.124 It's the most regressive form of tax. 00:06:11.604 --> 00:06:13.294 that there is, is what inflation does. 00:06:13.335 --> 00:06:18.645 So, um, I'm not quite there on that, on what these effects may be. 00:06:18.645 --> 00:06:21.715 Ultimately, we don't know, but I think if there's a big risk for investors out 00:06:21.715 --> 00:06:23.724 there, it's that inflation comes back and you're going to have to readjust 00:06:23.724 --> 00:06:26.265 your portfolio for those types of exposures and what can handle that. 00:06:26.335 --> 00:06:26.635 Right. 00:06:26.705 --> 00:06:27.794 And you don't deny that, right? 00:06:27.794 --> 00:06:29.244 You, you, you didn't know what we're talking about. 00:06:29.244 --> 00:06:32.755 We talk about this is de globalization and there is a downside to de globalization. 00:06:33.164 --> 00:06:35.885 And not all companies will participate in this, but there are a number of 00:06:35.885 --> 00:06:39.414 companies that realize they'd rather take even at a slightly lower margin. 00:06:39.805 --> 00:06:41.395 Especially given the experience that they've gone with 00:06:41.395 --> 00:06:42.615 supply chain dislocation. 00:06:42.975 --> 00:06:45.515 And also the cost benefits that they saw in some countries 20, 00:06:45.515 --> 00:06:48.325 30 years ago are just not there in the same way they were before. 00:06:48.745 --> 00:06:52.025 When you trade off price and security, security becomes an increasingly 00:06:52.025 --> 00:06:53.675 important factor in the overall equation. 00:06:54.065 --> 00:06:54.375 Yeah. 00:06:55.294 --> 00:06:56.794 That's sort of the way I feel about it too. 00:06:56.794 --> 00:07:02.414 I, uh, uh, I'm a big proponent of globalization, but we saw the national 00:07:02.415 --> 00:07:06.069 security risks here of things like being held hostages to, you know, 00:07:06.570 --> 00:07:11.040 Companies over pharmaceuticals or lithium production or semiconductor production. 00:07:11.050 --> 00:07:13.719 It is a national security issue So unfortunately, we're just 00:07:13.719 --> 00:07:14.640 gonna have to deal with it. 00:07:14.849 --> 00:07:20.060 I guess just to wrap this up here Why not just a general fund your 00:07:20.060 --> 00:07:23.780 point about just own XLI, which is the S& P industrial fund. 00:07:23.900 --> 00:07:26.450 It's not specialized enough Is that yeah, 00:07:26.450 --> 00:07:32.989 I think I think you buy a theme ETF like this to diversify away from big cap 00:07:32.990 --> 00:07:36.835 tech and mega cap growth right You have immense exposure in those types of funds. 00:07:37.265 --> 00:07:41.205 And then the XOI really does have a diversification problem, right? 00:07:41.205 --> 00:07:43.965 The top three weights are only about 10 12 percent of that index. 00:07:43.974 --> 00:07:47.344 There's no big heavyweights to move around that index. 00:07:47.724 --> 00:07:49.364 So if I'm going to play industrials at this point, I'd 00:07:49.364 --> 00:07:53.325 rather focus on a sustainable scenario, perhaps it's reshoring. 00:07:54.345 --> 00:07:57.975 Rather than trying to aim for machinery, industrial, uh, aerospace 00:07:57.975 --> 00:07:59.995 and defense, professional services. 00:08:00.115 --> 00:08:03.545 It's funny you're arguing for active, concentrated, Kathy Wood fine stuff 00:08:04.045 --> 00:08:07.885 versus the old, you know, state, state with market cap weighted. 00:08:08.095 --> 00:08:11.914 I like it as a, an additional portfolio and not as much rocket fuel 00:08:11.915 --> 00:08:13.235 that high beta growth might have. 00:08:14.365 --> 00:08:15.435 It's an interesting argument. 00:08:15.435 --> 00:08:16.975 I haven't seen you made this argument before. 00:08:16.995 --> 00:08:18.205 And obviously you're in that space. 00:08:18.485 --> 00:08:20.085 So you believe active is the way to go with this? 00:08:20.195 --> 00:08:23.255 Well, I think to identify the beneficiaries of reshoring, you can't 00:08:23.255 --> 00:08:26.035 necessarily take an index approach and also not all companies are 00:08:26.035 --> 00:08:27.335 going to benefit from this equally. 00:08:27.725 --> 00:08:29.224 So at Grants, you need to manage risk. 00:08:29.295 --> 00:08:30.685 You need to identify the winners. 00:08:30.944 --> 00:08:33.824 And we think we believe that this is something that the flexibility 00:08:33.824 --> 00:08:36.525 of the active allows you to do coupled with the experience of 00:08:36.525 --> 00:08:37.864 the people who run our strategy. 00:08:38.154 --> 00:08:38.874 That's critical.