The Emles Made in America ETF (AMER) seeks investment results that correspond, before fees and expenses, to the price and yield performance of the Emles American Manufacturing Index, an index designed to provide exposure to U.S. equities, predominantly companies headquartered and focused on the production of goods within the U.S.
Performance summary of Q4 2020
Since the Fund’s inception on October 14, 2020, the Fund has continued to rise gaining 6.6% as of December 31, 2020 tracking the Emles American Manufacturing Index (AMERAMT). This return compares unfavorably to an 8.0% return delivered by the S&P 500 Index over the same time period as investors focused on multiple vaccine announcements and an U.S. Presidential election.
- Contributors: Non-energy materials, primary metals products, paper packaging, heavy building material and aggregate products
- Detractors: Consumer non-cyclicals, including diversified household products makers, food production and household cleaning products
- Outlook: Food production, heavy building material and aggregate products, and primary metals products remain the top sectoral exposures. We believe a “blue wave” may drive outperformance in value stocks going forward
Quarter in review
- The Fund underperformed the benchmark, the S&P 500 Index, for the quarter ended December 31, 2020. Technology outperformed as investors focused on multiple vaccine announcements and an U.S. Presidential election, where Democratic President-elect Joe Biden was proclaimed the winner, Democrats retained the House and Senate control remained up in the air until January 2021.
- An overweight position in Packaging Corporation of America (4.0% portfolio weighting) was a top contributor as investors rewarded the company for its strong financial results and a 27% dividend increase. The company also demonstrated a 2.95% forward yield following an increase in demand for containerboard as consumers continue to shop online.
- An overweight position in Clorox Company (5.0% portfolio weighting) detracted from the Fund’s performance for the quarter, as investors recognize the recent approval of vaccines may create challenging quarters to come. However, we believe there is potential upside as the company ramps up manufacturing production to better meet demand and leverage changes in consumer behavior beyond the end ofthe COVID-19 pandemic.
- We continue to build conviction that the “blue wave” and Biden’s “Buy American” policies may drive outperformance in value stocks and the Fund going forward. We believe the stable dividend yields offered by such companies are being undervalued by the market. The portfolio is largely insulated from renewed COVID-19 restrictions and we expect demand to continue to be strong across the portfolio.
- Food production, heavy building material and aggregate products, and primary metals products remain the top sector exposures for the Fund.
- Food production: We expect potential inflation pressure, retracement of COVID-related volume and higher promotional intensity to negatively impact performance. However, more stability is expected once inventory levels normalize; investors may stand to benefit from relative valuation and yield potential.
- Heavy building material and aggregate products: We have a bifurcated view on heavy building material. On one hand, housing supply is tight and has experienced steady growth. On the other hand, public construction may experience a slowdown in 2021 and private nonresidential investments in lodging, retail and office verticals may decline.
- Primary metals products: Lack of supply has resulted in long lead times for U.S. flat steel, which in turn has increased prices to within 5% of all-time highs. Steel demand is expected to remain robust in 2021, with new supply expected to arrive during the year.