Are you curious what the experts think are the big market trends to be on the lookout for? You’re not alone. We sat down with Jason LaMacchia, the Head of Product at investment firm, Engine No. 1, to answer your big questions about today’s market trends.
Jason LaMacchia leads investment product and platform management for the investment firm, Engine No. 1’s Transform Exchange Traded Funds (ETFs). He has over 20 years of experience in financial services working with many different parts of the industry. He is a wealth of knowledge on developing new investment strategies and driving growth. Jason has made himself available to answer your questions on Market Trends.
Your Questions Answered by Jason LaMacchia
Question: What are the big trends we should look out for this year?
Answer: From our experience, we know that the time for making money in the tech sector alone was the past decade. We believe the next decade’s themes are going to be huge economic sector transitions. Two of the big transformations we see are the energy transition to zero emissions and the supply chain changes associated with the fourth Industrial Revolution.
Question: What is the fourth industrial revolution?
Answer: Over the last three decades, global supply chains have been focused on financial efficiency above all else. This reduced their resiliency and flexibility, ultimately hurting their profits and their competitiveness.
The reductions in flexibility and effectiveness have been made painfully clear of late with the disruptions caused by the COVID-19 pandemic, geopolitics, and war in Ukraine. Relocalizing supply chains fixes these issues by increasing corporate flexibility, returning jobs to the U.S. and North America, and helping companies continue their push for responsible and dynamic operations.
The Engine No. 1 Transform Supply Chain ETF (SUPP) is focused on the transformations happening in the supply chain and invests in companies that are leading – and benefiting – from relocalization. By focusing on companies that we believe will lead and benefit from the inevitable supply chain transformation, investors can take early advantage of what we think will be the next big investment opportunity. Once relocalization reaches full steam, the opportunities for investment in transportation, automation, and innovation in manufacturing are vast.
We believe the inevitable transformation of the supply chain will lead to growth in key sectors of the economy like manufacturing. In 2022, U.S. companies were on a record pace to relocalize nearly 350,000 jobs. Additionally, bringing manufacturing, transportation, and warehousing jobs to the U.S. creates a 5.1x employment multiplier. And, manufacturing in the U.S. has a huge emissions reduction benefit versus (1) global supply chains that use fossil fuel to move goods and (2) manufacturing offshore where negative externalities like emissions and labor practices are not assessed. Companies that lead these shifts will enjoy higher revenue, greater valuation, and robust share price multiples.
For more information at the Transform Supply Chain ETF (SUPP), go to etf.engine1.com/supp.
Question: Are the trends you saw at the beginning of the year still relevant?
Answer: We believe that these are the trends that will shape the next few decades and the value created for investors will be realized over many years to come.
We believe that these are the trends that will shape the next few decades and the value created for investors will be realized over many years to come.
Question: With this year’s inflation, does it change your view of any of these market trends
Answer: These are all long-term market trends that we are focused on. Therefore, short-term market volatility should not have an outsized impact on the long-term value we believe is being created.
Question: How do your funds invest in a trend?
Answer: At Engine No. 1, we aim to identify those companies that we believe will lead and profit most from these major economic transformations. These are the companies that, in our view, will benefit from the fundamental reshaping of the industry they are in and therefore are likely to generate outsize returns, creating value for investors. Our funds then invest in those companies that are leading, what we believe to be, the epic systems transitions of the next decades and which will create significant value over many years to come.
Question: What should I do with my portfolio to take advantage of trends?
Answer: Engine No. 1’s ETFs provide exposure to large scale opportunities tied to epic systems transitions that, in our view, pure market cap investors or investors focused solely on technological innovations are missing. These are trends that are happening now so the time is right to capitalize on the opportunities being created.
These are actively managed ETFs that pursue high-conviction stocks we believe have tremendous upside potential based on how they’re positioned to benefit from the various economic transformations. Active thematic strategies can be held as a satellite to core holdings to gain exposure to what we believe are the largest systemic changes of our time. If you hold a core index portfolio, VOTE is a way to do this to use your vote to drive transparency and economically positive outcomes.
To learn more about VOTE and Engine No. 1 Transform ETFs, go to etf.engine1.com/VOTE and etf.engine1.com.
Question: What stocks should I be looking at? What do you think will outperform given the market trends?
Answer: This varies depending on the system change that you are talking about. But we believe once-in-a-generation transformations span sectors and can drive incredible long-term value for investors. Looking at these themes over time and analyzing companies from top to bottom, we aim to identify the incumbents and the disruptors most likely to win these huge transformations.
When looking at the supply chain, we believe that the transformations happening will lead to growth in manufacturing, logistics and transportation. Companies in these sectors will benefit. Specific companies innovating their supply chains will benefit from this transition as well.
When looking at the energy transformation, we invest in the heart of the change – directly through the companies in the most carbon-intensive industries. Nearly 75% of global greenhouse gas emissions come from just three industries – energy, agriculture, and transportation – and to drive decarbonization at scale, you need to go where the emissions are.
We also think there is value to be created in some of the largest publicly traded companies. We have a fund that invests in 500 of those companies and allows investors to use their shares to help these companies improve their value through active ownership.
Question: I want to invest sustainably. How do I do that?
Answer: The energy transformation is one of the biggest sector transitions in a generation. By some estimates, it will require an investment of $4 to $5 trillion per year to meet net zero targets. This opportunity goes beyond just one sector, spanning our entire economy and giving investors the chance to play a profitable role as companies transform.
While most climate-focused strategies invest in early-stage green technology companies, we invest in the heart of the energy transformation – directly through the companies in the most carbon-intensive industries. Nearly 75% of global greenhouse gas emissions come from just three industries – energy, agriculture, and transportation – and to drive decarbonization at scale, you need to go where the emissions are.
With fewer than 200 companies accounting for over 80% of corporate industrial greenhouse gas emissions, there is no path to net zero that doesn’t go directly through those companies.
We believe that there are companies that have a strategy to create value on their path to net zero across multiple industries that most need to decarbonize, including transportation, energy, and agriculture. Net zero means achieving a balance between the greenhouse gasses emitted into the atmosphere and those that are removed from it. We believe this inevitable change requires investment in capital that gives investors the opportunity to play a meaningful and profitable role in transforming companies while also greening the planet.
If you’d like additional information on Engine No. 1 or their products, you can visit their website at https://engine1.com/ to learn more.
Important Information Before investing you should carefully consider the fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained from etf.engine1.com. Please read the prospectus carefully before you invest. Investing involves risk, including the possible loss of principal.
Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns.
The Engine No. 1 Transform Supply Chain ETF (SUPP) – is an actively-managed exchange-traded fund (“ETF”) that seeks to invest in companies that we believe will succeed long-term by benefitting from the supply chain transformation. Target companies are generally chosen from companies included in the Morningstar® US Market Extended TR USD Index℠. The Fund’s investment objective is long -term growth of capital.
SUPP Risks:
The fund is subject to the following risks:
Supply Chain Risks. Companies supply chains are generally subject to risk such as legislative or regulatory changes; adverse market conditions and/or increased competition; technological developments and changing technology; cyberattacks that may compromise a company’s operations or business; occasional sharp price movements which may result from changes in the economy, fuel prices, labor agreements, exchange rate movements, and insurance costs; pandemics, natural disasters or other crisis; boarder and/or import controls; pent-up /increased demand; mobility restrictions; shortages of product and labor; dependence on intellectual property rights, and potential loss or impairment of those rights; research and development costs; and rapid product obsolescence. Global, regional, or local events, such as changes to trade relations, trade restrictions, and/or military conflict, may materially disrupt or indefinitely impair the operations of these companies.
Non-Diversification Risk. The Fund is considered to be non-diversified, which means that it may invest more of its assets in the securities of a single issuer or a smaller number of issuers than if it were a diversified fund.
Emerging Markets Risk. Investments in securities and instruments traded in developing or emerging markets, or that provide exposure to such securities or markets, can involve additional risks relating to political, economic, or regulatory conditions not associated with investments in U.S. securities and instruments.
Concentration Risk. The Fund may be susceptible to an increased risk of loss, to the extent that the Fund’s investments are concentrated in the securities and/or other assets of a particular issue or issuers, country, group of countries, region, market, industry, group of industries, sector or asset class. Please read the prospectus for additional risks.
Engine No. 1 Transform 500 ETF (VOTE) – intends to invest in 500 of the largest US public stocks. It tracks a market cap-weighted index provided by Morningstar that is diversified across sectors and captures over 80% of the US equity market.
VOTE Risks:
The Fund is not actively managed, and the investment adviser, Fund Management at Engine No. 1 LLC, generally does not attempt to take defensive positions under any market conditions, including declining markets. The Fund may be subject to tracking error, which is the divergence of the Fund’s performance from that of the Underlying Index. Large-capitalization companies may be less able than smaller capitalization companies to adapt to changing market conditions. The Fund can have exposure to derivate instruments. Please see the prospectus for a full list of fund risks. When the Fund engages in activism, such activities may not be successful, or even if successful, the Fund’s investment may lose value.
Additionally, engaging in activism may cause the Fund to incur additional expenses that another similar index fund may not experience. In addition, while Engine No. 1 may seek an active ownership approach, there are regulatory restrictions applicable that may limit the nature and extent of engagement in certain circumstances. Nonetheless, Engine No. 1 intends to seek opportunities where possible to employ its active ownership beliefs, while being mindful of such regulatory limits.
Disruptive Innovation Risk. Companies that the adviser believe create and capitalize on disruptive innovation and developing technologies to displace older technologies or create new markets may not in fact do so. Companies that initially develop a novel technology may not be able to capitalize on the technology.
The Fund is advised by Fund Management at Engine No. 1 LLC. Distributed by Foreside Financial Services, LLC.