The reindustrialization of America is the winning investment theme that’s hiding in plain sight, investment manager Richard Bernstein said.
“The U.S. renaissance theme is one people haven’t caught up on yet,” Bernstein, CEO and CIO of Richard Bernstein Advisors, said during his recent quarterly market update webinar, called “Politics, Profits, and Positioning.”
“We’re in the first third of the game. It’ll get bigger and bigger,” he said.
The manager said that the period of “maximum globalization,” or the interdependence of the world’s cultures and economies, happened between the implementation of the North American Free Trade Agreement (NAFTA) and tariffs, between 1990 and 2019.
During globalization, Bernstein said, production gravitated to the countries with the most efficiency, which didn't include the U.S. The nation increasingly became a consumption-based economy, which has led to a growing trade deficit and concerns about the U.S. “being dependent on the rest of the world for everything,” including semiconductors, he said.
If the U.S. regains some element of economic independence, he said, the reindustrialization of America theme is “gonna work in spades.”
“If the manufacturing base builds at all over the next five, 10, 15, 20 years, the American industrial renaissance theme is going to be a very big one,” he said.
Bernstein, whose multi-asset New York firm manages $15.6 billion through vehicles such as an ETF and unit investment trusts, cited his firm’s First Trust American Industrial Renaissance ETF (AIRR), which he said capitalizes on deglobalization in the U.S. According to Morningstar, the five-star rated $1.7 billion ETF, which measures the performance of small and mid-cap U.S. companies in the industrial and community banking sectors, has produced an average annualized return of 14.75%, as of Oct. 31, over the past 10 years, outpacing the Morningstar’s category and U.S. industrial index.
“This is incredible,” Bernstein said. Here’s a “theme that’s outperformed for the last decade and nobody knows about it.”
Bernstein argued that the outcome of the presidential election will not have a negative impact on the markets, as the S&P has scored double-digit returns over most presidential terms going back to Jimmy Carter. But he said that the reindustrialization theme is a bipartisan issue.
“Both the Democrats and the Republicans are talking about the reindustrialization of America, though they have different routes of getting there," he said. "We think it’ll be a very successful theme. As investors we don’t care how we get there, we just want to get there.”
Reindustrialization and the AIRR ETF should be viewed as a long-term investment, stretching more than 10 years perhaps, he said.
“It’d venture a guess that it’s more than normal investors’ timeframe,” he said, adding that investors should use the AIRR ETF as “a pseudo alternative." After five to 10 years, he said, "you’ll be happy.”