ETFs Revived by a Stealth Trump Trade as Assets Soar

Two relatively obscure exchange-traded funds (ETFs) focused on American manufacturing themes are quietly gaining traction, indicating investor confidence in the future of domestic production under the next presidential administration.

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While other election-related trades have been reconsidered due to shifting political dynamics, the First Trust RBA American Industrial Renaissance ETF (ticker AIRR), which holds small- and mid-cap industrial and community bank stocks, is experiencing its longest streak of inflows in its 10-year history, spanning 27 weeks and amassing $1.4 billion in assets.

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Similarly, the Tema American Reshoring ETF (RSHO), which focuses on the domestic supply chain, has seen nine consecutive weeks of inflows, growing its assets nearly ninefold this year to $95 million.

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Athanasios Psarofagis, an ETF analyst at Bloomberg Intelligence, highlighted the potential benefits of these investments, particularly in the context of a Donald Trump presidency. "It’s an underappreciated trade," he said, noting that these companies, which are domestically focused with larger market caps, could benefit from reduced reliance on China.

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In line with this trend, BlackRock Inc. recently launched the iShares US Manufacturing ETF (MADE), which tracks companies in manufacturing and related industries. This launch underscores the policy measures aimed at boosting domestic growth.

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The sustained interest in these lesser-known securities contrasts with the broader so-called "Trump trade," which has included a variety of assets such as industrials, energy stocks, and even cryptocurrency, all of which could potentially benefit from deregulation. However, the political landscape remains uncertain, especially with President Joe Biden stepping out of the race and Vice President Kamala Harris emerging as the leading Democratic candidate, illustrating the risks of betting on broader themes so far ahead of the election.

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Despite their relatively small size in the $9.5 trillion U.S. ETF market, the consistent inflows into AIRR and RSHO suggest that some investors believe reshoring and industrial stocks will perform well regardless of the election outcome.

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The AIRR ETF, which has been around for a decade, tracks an industrial index that includes companies like Mueller Industries Inc., Primoris Services Corp., and MSC Industrial Direct Co Inc. On the other hand, the RSHO ETF focuses on American reshoring firms, with Applied Industrial Technologies Inc. and Eaton Corp. being its largest holdings.

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This movement comes amid a broader market reassessment in anticipation of the November election. According to Bloomberg Intelligence’s Gina Martin Adams and Nathaniel Welnhofer, the shift towards domestic-focused stocks reflects expectations of lower interest rates rather than a definitive indication that Wall Street is positioning for a Trump victory.

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In summary, these two under-the-radar ETFs are attracting investors who are banking on the strength of American manufacturing and industrial sectors, anticipating that these themes will be robust regardless of the political outcome in the upcoming presidential election.

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