Engine No. 1 has debuted its second actively managed ETF, a US equity fund targeting companies that are creating long-term value by making supply chains more resilient.
Eli Horton, Portfolio Manager at Engine No. 1.
The Engine No. 1 Transform Supply Chain ETF (SUPP US) has been listed on Cboe BZX Exchange with an expense ratio of 0.75%.
Engine No. 1 notes that, in the last three decades, global supply chains focused on financial efficiency to the detriment of resiliency and competitiveness. The COVID-19 pandemic brought these weaknesses to the fore with an estimated $3.5 trillion in global income eliminated by supply chain disruptions.
Forced to rethink their supply chains, many US-based companies are pushing to re-localize manufacturing back to North America while increasing automation and improving transportation and logistics management. Engine No. 1 believes that companies leading this transition will benefit from increased market share, higher perceived quality of goods, and dynamic cost management, resulting in greater shareholder value.
Commenting on the investment thesis, Eli Horton, lead portfolio manager for the ETF, said: “It has never been more important for companies to make their supply chains more resilient, while also re-localizing manufacturing and jobs to North America. We will invest in the companies that will drive and benefit from the ongoing supply chain transformation – creating long-term economic value and meaningful social and environmental impacts.”
Yasmin Dahya Bilger, Head of ETFs at Engine No. 1, added: “We believe the entire supply chain system is changing and that transformation presents a once-in-a-generation opportunity for investors. We’re building a portfolio that capitalizes on the transition from old technologies to new ones, from short-term expediency to long-term value creation, and away from the low-cost-at-all-costs thinking of the last 30 years towards a more resilient and modern American economy that is a leader in global competitiveness and that creates well-paying jobs here at home.”
Investment approach
The ETF invests across the US market capitalization spectrum, using proprietary fundamental research to select between 20 and 40 firms that are creating value or minimizing risks relating to their supply chains or the supply chains of others. Notable metrics include the creation of manufacturing jobs closer to distribution centers in North America, the adoption of business practices with lower environmental impacts, and the diversification of supplier sources in order to minimize potential disruptions.
Companies will be sourced from a broad range of industries such as factory automation, transportation providers, industrial goods and services, alternative energy, semiconductors & equipment, materials, and waste management & recycling.
The fund will also benefit from Engine No. 1’s activist approach whereby the firm seeks to improve the environmental and social impacts of its portfolio companies by casting proxy votes and actively engaging with these firms’ management teams. Engine No. 1’s approach to proxy voting is based on a commitment to align shareholder and stakeholder interests through actions that encourage companies to invest in their employees, communities, customers, and the environment.
As of 17 February, over two-thirds (68.0%) of the ETF was allocated to stocks from the industrials sector followed by materials (15.0%) and information technology (7.1%). Notable positions included Martin Marietta Materials (7.2%), Willscot Mobile (7.0%), Advanced Drainage Systems (5.9%), Ferguson (5.0%), United Rentals (5.0%), and Rockwell Automation (5.0%).