For much of 2023, U.S. equity market performance has been driven by a relatively small group of mega-cap growth stocks. As of 6/7/23, Apple, Microsoft, NVIDIA, Amazon, and Meta contributed over 8 percentage points to the S&P 500 Index’s 12% total return.1 Meanwhile, returns for small- and mid-cap stocks have faltered, along with cyclical sectors, such as industrials, financials, and energy. Against this backdrop, one surprising outlier has been the First Trust RBA American Industrial Renaissance ETF (AIRR), which reached a new all-time high on 6/7/23 (see Chart 1). Year-to-date, AIRR’s 19.2% total return has outperformed the S&P 500 Index by over 7 percentage points (as of 6/7/23). AIRR seeks investment results that correspond generally to the price and yield of an index called the Richard Bernstein Advisors American Industrial Renaissance® Index, which is designed to measure the performance of small and mid-cap U.S. companies in the industrial and community banking sectors.

What makes AIRR’s outperformance this year so remarkable is that, at a high level, none of these categories have performed particularly well this year, yet many of AIRR’s holdings have bucked the trend. In our opinion, there are two key factors helping to drive AIRR’s performance this year: increased spending on infrastructure and a building boom for manufacturing.

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