Picks & Shovels

The GMO Domestic Resilience ETF (DRES) invests in companies we believe will benefit from American reindustrialization.

Our largest investment category, Manufacturing & Automation, is an intentionally broad category because it captures a wide variety of companies with exposure to the American industrial economy.

We think of these companies as “picks and shovels” beneficiaries of reindustrialization because they provide essential inputs to building in America.

The examples that follow help illustrate the numerous roles these types of companies could play in the next generation of American industrial growth.

Roofs, Locks, and Lights

Talk of manufacturing growth is often accompanied by images of large buildings filled with machines and workers. Reindustrialization will require more of these facilities, and their construction will rightly attract headlines. Although comparatively less glamorous, each of these buildings will also require a variety of mundane but essential components.

Roofs, locks, and lights aren’t the stuff of newspaper headlines, but you can’t make a building without them.

These products are important and complex, often requiring design and manufacturing expertise that creates competitive advantages for the companies that have it. Consistent with this profile, the Domestic Resilience portfolio owns leading manufacturers of lighting (Acuity Brands), roofing (Carlisle), and locks (Allegion). Each company derives more than 75% of its revenue from the U.S. market and is a market leader in its category.

We believe that their strong competitive positions put these companies in an enviable long-term position as America builds out its industrial base.

“First On, Last Off”

This quote refers to a motto often expressed about the products of WillScot Holdings, a Domestic Resilience holding.

WillScot has the #1 market share in both the modular office and mobile storage industries in the U.S. Modular buildings, as the quote suggests, are typically one of the first items brought on to a construction site at the beginning of a project and the last to leave at its completion.

While its products serve temporary purposes (around three years on average), WillScot’s #1 market share gives it advantages of scale and scope in what is typically a local market business with “mom and pop” competitors. While WillScot’s stock has declined recently amid changes in company management following several years of aggressive growth and near-term cyclical concerns, we believe the company’s leadership position in the U.S. market is far steadier than stock market gyrations suggest.

We believe that these short-term stock market concerns give us the opportunity to own a market-leading company at an attractive valuation.

Lights, Cameras… and other things requiring electricity

Another theme within Manufacturing & Automation is electrification. It is a popular area today because investors are looking for ways to capitalize on investments in artificial intelligence (AI). However, it’s important to understand that AI-driven growth is only one piece of the U.S. electrical growth equation.

Rebuilding America’s industrial base will require a lot of electricity.

This demand comes at a time when a significant percentage of the country’s electrical grid is overdue for an update. We believe the combination of growing demand and upgrade requirements creates a favorable backdrop for companies like Domestic Resilience holding MYR Group, which serves as a contractor for utilities doing upgrades to transmission and distribution infrastructure.

MYR is a smaller company and less well-known than some of its larger peers, but we think it’s an investment that will benefit from the electrical growth and upgrade tailwind at a reasonable valuation. We think similarly about our position in Hubbell, which makes the electrical components that go into these utility systems. The company makes a wide range of products like insulators, switches, anchors, and other components necessary to make an electrical grid run.

With a variety of long-term demand drivers, we think electrification will play an important role in future American industrial growth, and companies like MYR Group and Hubbell represent good investments to harness this opportunity.

Invest in the Opportunity — DRES

The GMO Domestic Resilience ETF (NYSE: DRES) is an actively managed fund designed to provide focused exposure to American manufacturing and the structural forces reshaping the U.S. economy through a disciplined, bottom-up investment approach.

Explore DRES

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Author

Klar_Sam

Sam Klar

Portfolio Manager

Mr. Klar is engaged in portfolio management and research within GMO’s Focused Equity team. Previously at GMO, he was a portfolio manager on the Event-Driven team, and prior to that, he was a member of the Global Equity team. Prior to joining GMO full-time in 2006, he held a co-op position at GMO with the Emerging Markets Equity team. Mr. Klar earned a bachelor's in Finance from Northeastern University.

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