There's an ETF for That? Reshoring and Nearshoring

The rise of reshoring and nearshoring

One of my go-to resources for tracking the state of reshoring is the Reshoring Index, which is released annually by the global management consulting firm Kearney.

Their 11th annual report, published in April, offers valuable insights into import/export flows between the U.S. and what they refer to as "low-cost countries and regions" (LCCRs). This term is used to describe regions typically favored for offshoring due to their lower operational and labor costs.

The report found that U.S. imports from 14 Asian LCCRs dropped from $1.022 billion in 2022 to $878 million in 2023, while domestic manufacturing gross output remained essentially flat. This indicates a shift towards more local production and less reliance on overseas manufacturing.

Additionally, the U.S. Self-Sufficiency Index (SSI), which measures the proportion of goods consumed in the U.S. that are also made in the U.S., has shown a steady increase since it flipped in favor of domestic production in 2021, with an increase of 5% from 2022 to 2023.

Regarding friendshoring, the report highlights a significant trend: imports from Canada have steadily increased since the pandemic began. Even more notably, Mexico has outpaced China, becoming the largest exporter to the U.S. Imports from Mexico rose by 32% from $320 billion in the pre-COVID period to $422 billion more recently.

This shift underscores a growing preference for closer economic ties with neighboring countries, which can offer both logistical advantages and greater political stability.

"The result is a set of U.S. directives to shift away from globalization to regionalization, away from trade with China favoring friendlier and geographically closer trade allies," Garza explains. " As much as the globalization process of the 80s and 90s took place over a multi-decade period, we think reshoring and nearshoring, which has just started, will continue as a major economic driver for years to come." 

Reshoring and nearshoring ETFs

The thematic ETFs focusing on reshoring and nearshoring span a range from pure-play funds targeting either concept to hybrid ETFs that cover both areas.

For reshoring, investors can choose between two primary funds: the Tema American Reshoring ETF

and the iShares U.S. Manufacturing ETF

MADE

. If you're interested in passive management, MADE might be the right choice.

This ETF tracks the S&P U.S. Manufacturing Select Index, which includes just under 100 companies in industrial manufacturing, consumer vehicles, and electronic components that generate the majority of their revenues domestically. Notable companies in its top holdings include Honeywell, Deere, General Motors, Ford, RTX, Lockheed Martin, and Boeing.

On the other hand, RSHO offers an actively managed, more concentrated portfolio with 31 holdings, showcasing a high conviction approach compared to MADE's index-focused strategy. Its top holdings include companies like Eaton PLC, Linde, Ingersoll Rand, and Applied Industrial Technologies. RSHO carries an expense ratio of 0.75%, versus 0.40% for MADE.

For a focus on nearshoring, Aztlan offers the North America Nearshoring Stock Selection ETF

, which specifically targets U.S., Mexican, and Canadian equities.

The proprietary Aztlan North America Nearshoring Index targets eight industries: Industrial REITs, Specialty REITs, Real Estate Management & Development, Specialized REITs, Ground Transportation, Air Freight & Logistics, Transportation Infrastructure, and Marine Transportation.

The index utilizes a factor model to screen for cash flow generation, value, growth, capital structure quality, earnings revisions, and momentum. NRSH also carries a 0.75% expense ratio, the same as RSHO.

Finally, for those looking for a hybrid approach, there's the TCW Transform Supply Chain ETF

, which maintains a high conviction portfolio of 25 holdings and a 0.75% expense ratio.

SUPP notably focuses on companies in environmental services, such as Waste Management, Waste Connections, and GFL, alongside railways such as Canadian Pacific Kansas City, which operates routes from Canada to Mexico.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.