Engine No. 1 became a household name with its Transform 500 ETF (VOTE), which leveraged its proxy powers and expertise to oust several ExxonMobil board members in July 2021.
More recently, the fund launched its Transform Supply Chain ETF (SUPP) to invest in companies driving supply chain resilience. As supply chains undergo a generational shift back to North America, the fund aims to create real, long-term value by investing in businesses leading the dramatic transformation over the coming years.
See our Active ETFs Channel to learn more about this investment vehicle and its suitability for your portfolio.
Relocalization Becomes a Trend
The COVID-19 pandemic and ongoing tensions with China underscore the need for supply chain resilience. And over the past couple of years, several pieces of legislation have led to genuine investment.
The Inflation Reduction Act made the most significant investment in climate and energy in American history, pushing to create a domestic clean energy manufacturing industry. In particular, the legislation requires EV manufacturers to shift operations to North America to qualify for tax credits, encouraging a massive scale-up in local production.
Similarly, the CHIPS and Science Act provides about $280 billion over 10 years to promote on-shore semiconductor research and development and plant and chip manufacturing. Over $50 billion will go directly toward researching and manufacturing semiconductor chips in the U.S., while $39 billion will help expand existing manufacturing activity.
Engine No. 1 Offers a Pure Play
Engine No. 1’s Supply Chain ETF (SUPP) is an actively-managed fund providing targeted exposure to these trends. In addition to the fund managers’ fundamental research and data-driven decision-making processes, they aim to use their voting power to drive change that will impact return on investment over the long run.
Currently, the fund holds a concentrated portfolio of 28 companies, including exposure to industrials (67.96%), materials (14.98%), information technology (7.06%), consumer discretionary (3.03%), and healthcare (1.97%). The fund managers believe these companies are well-positioned to benefit from tomorrow’s supply chains.
The most significant holdings include:
- Willscot Mobile Mini Holdings Corp. (WSC) – 7.15%
- Martin Marietta Materials Inc. (MLM) – 7.06%
- Advanced Drainage Systems Inc. (WMS) – 5.72%
- United Rentals Inc. (URI) – 5.15%
- Rockwell Automation Inc. (ROK) – 5.07%
With about $10 million in assets under management, the fund charges a 0.75% total expense ratio.
Alternatives to Consider
Engine No. 1’s Supply Chain ETF offers exposure to North American companies, but there’s another potential beneficiary from the move away from China: the so-called ‘altasia’ countries.
The Economist recently opined that the alternative Asian supply chain might lure manufacturing away from China and become a new staple for price-sensitive imported goods. While infrastructure and logistics represent a real challenge, investors should consider the region’s potential to take market share from China over the coming years.
For exposure, the Global X FTSE Southeast Asia ETF (ASEA) invests in Singapore, Indonesia, Thailand, Malaysia, and the Philippines. While most of that exposure is to the financial sector, industrials are third after financials, real estate, and communication services. As a result, it may be a good option for the international part of a portfolio.
The Bottom Line
Engine No. 1 became a household name with its Transform 500 ETF, but its new Supply Chain ETF looks to capitalize on an equally significant trend: the relocalization of supply chains. By investing in this once-in-a-generation transition, the fund aims to maximize exposure to fast-growing companies concentrated in industrials and materials.
Take a look at our recently launched Model Portfolios to see how you can rebalance your portfolio.
