The Good: Onshoring US Manufacturing

US presidential campaign slogans provide insight into a point in time. Obama’s campaigns centred on enhancing social cohesion with his “Yes We Can” and “Forward” slogans portraying a message of unity and promise. Emphasis turned to the economy with Trump’s “Make America Great Again” and Biden’s “Build Back Better” campaigns. More recently, Trump’s 2024 slogan, “Make America Great and Glorious Again”, reinforces the economy as his primary focus. Doubts remain on how he will manage to fit “MAGAGA” onto a cap, but a clear bipartisan consensus has emerged which prioritises the onshoring of US manufacturing and securing the supply chain.

For many decades a country’s terms of trade, a measure of export relative to import prices, have buoyed globalisation as companies sought to maximise profits. However, recent events have made a case for onshoring, the process of bringing offshore manufacturing capacity back to the US. Concerns first arose during the 2018 Trade Wars as geopolitical tensions flared between the US and China. The need for onshoring was further substantiated when global trade ground to a halt following the implementation of Covid lockdowns which severely impacted the flow of goods. Whether for nefarious reasons or not, countries and companies have realised the importance of securing the functioning of their supply chains.

The desire to secure the supply chain involves both government national security interests and companies weighing the effects on profitability. The US government identified several strategic industries and subsequently implemented a raft of policies. The most notable being the CHIPS and Science Act, which allocates $280bn towards boosting the US’s semiconductor capacity. In the past, companies were reluctant to sacrifice profits and onshore production, but robotics and automation are rapidly removing this barrier. Large, modernised plants built from the ground up manufacture products more efficiently than those with outdated processes and technologies. A UBS survey found a staggering 90 percent of corporate executives said their companies were either in the process or considering the possibility of moving production out of China. Surveys are often removed from reality but companies have pledged to spend over $200bn on clean technology and semiconductor production facilities since the CHIPS Act was passed in August 2022. All this manufacturing spend translates into unprecedented demand for industrial space. According to industry figures released at the end of 2021, there was over 1bn square metres of US industrial space with 50mn square metres projected to be added in 2022 – a 5% increase in supply over one year!

Today’s technological innovations, primarily in the processing space, have ushered in the next industrial revolution. High Street has been invested in many of these themes for years and has significant exposure spanning the more defensive industrial property sector through to the chip manufacturers and even rare earths miners. Geopolitical tensions and onshoring are likely to persist as the world superpowers jostle for position which makes for a fast race where backing the winning jockeys will be critical to success.

The Bad: Surging Cybercrime

The rising threat of cybercrime was one again prominent during the month after the personal data of around 100,000 employees from companies and government agencies were hacked. British Airways, the BBC, and Canada’s provincial government of Nova Scotia were among the victims of the global data breach after hackers were able to exploit vulnerabilities in the popular file transfer software MOVEit. Russian-speaking hacking group “Clop” has claimed credit for the breach, demanding companies pay them a ransom for the sensitive payroll data which includes names, contact numbers and banking details. Failure to do so will result in them publishing the information on the dark web.

While the outcome of this particular breach is still uncertain, it nevertheless provides a stark reminder of the growing threat that cybercrime poses to both individuals and corporations. The rapid rise of digitalisation in recent years means that there are an enormous number of endpoints through which criminals can access personal data. Particularly difficult is the rise of work-from-home culture, where corporations can no longer secure employee devices through a single, protective network firewall. Attacks like Denial of Service, Phishing, and Ransomware are becoming increasingly common, and more destructive year by year. IBM estimates that the average cost of a data breach in 2022 was $4.35m, an increase of 13% since 2020.

By 2027, the worldwide cost of cybercrime is expected to be around $23.8tn. To help put this into perspective, the entire GDP of the United States is forecast to be around $30tn at that time. This mounting threat to individuals and businesses accentuates the pivotal role that cybersecurity providers will need to play as digital protection becomes a non-negotiable cost of doing business. These cyber companies need to be at the forefront of innovation, providing essential tools and services that help detect breaches and remedy system vulnerabilities. High Street has been building positions in this key industry across a number of its funds, but most notably in Wealth Warriors where exposure to key players within Network Security, Cloud Protection, and Threat Detection make up one of its most prominent investment themes.

& A Look into the Future

Apple recently previewed a product that has been billed as its biggest launch since the iPad, 13 years ago. The Apple Vision Pro, their new ‘’mixed reality” headset, has been 7 years in the making, twice as long as it took to create the first iPhone.

The Vision Pro, which resembles a pair of ski googles and is controlled by the user’s eyes, voice and hands, is a technological masterpiece that “seamlessly” blends the real and digital worlds. The headset is powered by Apple’s M1 and R1 chips, which together deliver a high resolution, real time, lag-free stream. The M1 chip is a 16 billion transistor GPU/CPU combination that powers the company’s leading laptops and computers, while the R1 is a brand-new chip designed specifically to process the input from the 12 cameras, five sensors and six microphones inside the Vision Pro. Apple have touted the R1’s ability to process this input data within 12 milliseconds – that’s 8x faster than the blink of an eye! This level of sophistication doesn’t come cheap, with the starting price for the Vision Pro rumoured to be around $3,499.

The question remains, what is this product used for? Primary use cases include video conferencing, industry/design, photos/videos and entertainment (gaming, TV/movies etc). Video conferencing is intriguing as the Vision Pro allows you to see the call participants you are talking to in life-size ‘Personas’. A ‘Persona’ is a digital representation of the user created using Apple’s most advanced machine-learning techniques, which reflects the users face and hand movements in real-time. The participant’s voice will also come from the direction of their ‘Persona’ thanks to Spatial Audio. It is hard to explain the intricacies of other use cases in so few words, but the short video below highlights the headsets functionality.

APPLE VISION PRO Announcement Trailer

If successful, this will be another example of Apple’s tremendous ability to diversify revenues away from the iPhone. More recent successes include their burgeoning Services business, as well as wearables/accessories such as AirPods and Apple Watches. Apple’s business model is diversified across multiple segments and geographies and its industry leading cash generation allows for superior capital returns, predominantly though their unprecedented share buyback program. This justifies its inclusion as a core holding in our Yielding Product portfolio.