Richard Bernstein Tactical Series, American Industrial Renaissance®, 2020-1
For many decades, American companies sent their
manufacturing work overseas. However, in a trend known
as “reshoring,” many companies have brought and many
are continuing to bring their manufacturing back to the U.S.
Some potential advantages companies have by reshoring
include: higher product quality, shorter delivery times,
rising offshore wages, lower inventory, and the ability to
be more responsive to the change in customer demands. In
2018, the U.S. manufacturing industry added approximately
$2.32 trillion to GDP.1
Over the years, the U.S. had become reliant on off-shore
supplies for their basic needs. However, because of this, the
U.S. was not prepared with necessary items the country
needed during the COVID-19 pandemic. This, in turn, might
provide the incentive needed to bring back manufacturing
segments which are considered critical for national resilience
According to a report by the World Economic Forum, the
U.S. remains an innovation powerhouse, ranking first on the
business dynamism pillar, second on innovation capability,
and first for finding skilled employees. As you can see in the
adjacent chart, and for the seventh year in a row, business
leaders around the world have chosen the U.S. as the number
one place to invest.2
Richard Bernstein Advisors believes the following factors point to the U.S. gaining industrial market share
Wages and Productivity
The U.S. manufacturing sector
has benefited from a talented workforce, advanced technology,
and pro-business policies. Although labor costs in the U.S. are
significantly higher than other countries, the productivity levels
found in the U.S. make up for this difference and have made
the U.S. an attractive location for manufacturing investment.
Disruptive technologies such as additive manufacturing,
3D-printing, advanced robotics, and the utilization of the
Internet of Things and Big Data are revolutionizing the U.S.
manufacturing sector. This advancement in technology has not
only increased levels of productivity in the U.S., but has also
made the U.S. one of the most attractive locations for high technology
Quality Control, Transportation Costs and Decreased Time to Market
Some companies that have already begun to reshore have cited the benefits in having
designers, engineers and sales people at the same facility rather than oceans apart.4 The
cost of shipping parts around the world and the associated time to market can create
hidden costs that may negatively impact both profit margins and market share.
2, 4 A.T. Kearney
Natural gas had long been the second-most
prevalent fuel for electricity generation behind coal. According
to the U.S. Energy Information Administration, natural gas-fired
generation first surpassed coal generation on a monthly
basis in April 2015. In 2019, natural gas had the largest
percentage contribution to electricity generation at 38.4%,
coal contributed 23.5% and nuclear rounded out the top 3
The Potential Advantage for Small Banks
Bernstein Advisors (RBA) believes large U.S. banks have
strayed from traditional lending sources of income, for
example, investing in corporate bonds rather than making
RBA believes this provides a growth opportunity for smaller
U.S. banks as they continue to aid U.S. capital formation.
Admittedly, traditional banking typically has lower
profitability ratios, but smaller U.S. banks do not need massive
trading infrastructures and unnecessary global risk-taking to
be profitable. Manufacturing is a capital-intensive business
that requires equipment, tooling and raw materials. RBA
believes manufacturers will turn to smaller banks for the
financing required to hire more workers, buy new equipment
and aggressively market themselves.
| Not FDIC Insured Not Bank Guaranteed May Lose Value
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An investment in this unmanaged unit investment trust should be made with an understanding of the risks involved with owning common stocks, such as an economic recession and the possible deterioration of either the financial condition of the issuers of the equity securities or the general condition of the stock market.
You should be aware that the portfolio is concentrated in stocks in the industrials sector making it subject to additional risks, including limited diversification. The companies engaged in the industrials sector are subject to certain risks, including a deterioration in the general state of the economy, intense competition, domestic and international politics, excess capacity and changing spending trends.
The trust also invests in companies in the financials sector. The companies
engaged in the financials sector are subject to the adverse effects of
volatile interest rates, economic recession, decreases in the availability of
capital, increased competition from new entrants in the field, and
potential increased regulation.
An investment in a portfolio containing small-cap and mid-cap companies
is subject to additional risks, as the share prices of small-cap companies
and certain mid-cap companies are often more volatile than those of
larger companies due to several factors, including limited trading
volumes, products, financial resources, management inexperience and less
publicly available information.
The value of the securities held by the trust may be subject to steep declines or increased volatility due to changes in performance or perception of the issuers.
As the use of Internet technology has become more prevalent in
the course of business, the trust has become more susceptible to
potential operational risks through breaches in cybersecurity.
The recent outbreak of a respiratory disease designated as COVID-19 was first detected in China in December 2019. The global economic impact of the COVID-19 outbreak is impossible to predict but is expected to disrupt
manufacturing, supply chains and sales in affected areas and negatively impact global economic growth prospects. The COVID-19 outbreak has also caused significant volatility and declines in global financial markets, which
have caused losses for investors. The impact of the COVID-19 outbreak may be short term or may last for an extended period of time, and in either case could result in a substantial economic downturn or recession.
This UIT is a buy and hold strategy and investors should consider their ability to hold the trust until maturity. There may be tax consequences unless units are purchased in an IRA or other qualified plan.