American Reindustrialization Could Be a Mega Long-Term Opportunity

SPEAKER_1 (0:00)

It's time for our ETF watchlist segment. Join me right now here on set, Sam Klar, Portfolio Manager, GMO Domestic Resilience ETF. And we're thinking about the reindustrialization of America over the next decade.

While I spoke to some people who don't think it's necessarily started, there certainly are plans for it to start. And that's where this comes in a bit. Tell us a little bit about some of the current opportunities that you're seeing.

Sam Klar (0:26)

Yeah, well, we think reindustrialization in the United States is a mega long-term opportunity. And one of the reasons that that's the case is because there are so many short-term factors that can distract us as investors. We think American reindustrialization has three major supports, policy, corporate America and the defense sector, all ready to counter arising China. And we think it's a really interesting long-term opportunity.

SPEAKER_1 (0:46)

And I saw some of the names that you have in there, and we'll get to those in the big picture.

It takes time to do this. So the ticker symbol here for this is D-R-E-S. Tell us about this particular ETF and what's comprised within it.

Sam Klar (1:03)

Yeah, so we launched Domestic Resilience to really take advantage of this opportunity. We're looking for business models that benefit disproportionately from American reindustrialization. So the type of companies that we want to own are ones that we think of as picks and shovels business models, companies that will benefit from reindustrialization wherever it occurs. Whether that's transportation companies like railroads, like Union Pacific, aggregates companies like Martin Marietta, or design and engineering companies like Jacobs Solutions. We're really trying to get a number of different ways to access this trend, mostly because we're finding value in a lot of different areas.

SPEAKER_1 (1:34)

So you talked about public policy and corporate policy. Those were two of your three catalysts. Let's go into those a little bit. How so?

Sam Klar (1:41)

Yeah. So what's really interesting from a public policy perspective is, I think today in America, people think that everything is partisan, right? Either Democrat or Republican. The really interesting thing about American re-industrialization is how bipartisan it is, right? Democrats and Republicans have different tactics and strategies around it, but they're actually quite similar. So we think the policy tailwind is pretty long and it is quite bipartisan. We add in the corporate element though, really coming out of COVID. The experience that corporations had during COVID was all of the offshoring that they did to China looked good on paper from a cost perspective, but then really started to hurt when they couldn't get goods out of China. Layer in all of the tariff activity over the last couple of years and really, there's more of a push for corporate America to manufacture closer to home.

SPEAKER_1 (2:25)

Yeah, and there's a variety of names in here. I mean, I'm looking at Northrop Grumman right there. I know you have Union Pacific in there.

Jacobs. Let's talk about the stock picking technique and the parameters that you use to get into. How do you get into DRES?

Sam Klar (2:42)

Yeah, so a lot of, I think, approaches to this strategy might be what I call the Noah's Ark approach to investing. They want to own a little bit of everything. We tend to be more focused in our stock selection, and the two big things that we care about are quality and value. So we want good firms, companies with good economic moats, and then we want to be able to buy them at attractive prices in the market. So all of our stock picking attention is focused on those two things, understanding the quality of the different businesses we're invested in, and then making sure we're paying a good price for the shares.

SPEAKER_1 (3:10)

Where does a rail like Union Pacific come in there? What's the story behind that?

Sam Klar (3:14)

Yes. So one of the really interesting things in the United States, if we think about it over the last couple of decades is, the way we manufactured goods was that they were made in China, finished, put on a boat, and then sent to America. We think as you start making more things in America, that will increase the amount of activity on the US transportation grid, and that's good for a lot of transportation firms, Union Pacific in particular, is one of the major rails in the US.

SPEAKER_1 (3:36)

Yeah, because also, we always talk about technology or AI. You can't replace the rails. It doesn't replace so easily.

Sam Klar (3:43)

These are heavy assets, and that's I think an area of the market that people have become less enamored with over the last couple of decades as we had all of this globalization push and people got really excited about technology. But these are companies that you literally can't run modern America without. Again, we're able to buy them getting this long-term tailwind of American reindustrialization, but paying prices that we think are really attractive.