Sam Klar

Sam Klar has spent nearly 20 years at GMO, starting as a co-op straight out of undergrad and working his way up through global equity and event-driven merger arb strategies. A self-described investing nerd who spends nights and weekends reading about business and markets, Klar now runs domestic resilience strategies at the firm Jeremy Grantham co-founded back in 1977. GMO manages roughly $70 billion in assets, and its DNA has always been rooted in quality, value, and conviction.

On this episode of Behind the Ticker, Sam sits down with Brad to talk about DRES (the GMO Domestic Resilience ETF), how the fund captures the American re-industrialization trend, and why he thinks most investor portfolios are dramatically underexposed to this opportunity.

Why Domestic Resilience Matters

The idea behind DRES came from a multi-year research project Klar worked on with Tom Hancock, who runs GMO's quality business. They set out to understand the forces behind deglobalization and the shift toward a multipolar world where borders start to matter more than they have in recent decades. What they found excited them: the US economy has specific areas poised to benefit from this transition, and most investors don't have meaningful exposure to them.

Here's the problem Klar keeps coming back to: the S&P 500 looks like a US index, but less than 60% of revenue for its constituent companies actually comes from the US market. It's really a multinational portfolio. DRES flips that script. Close to 90% of the revenue for companies in the fund comes from US operations. It's a fund built to capture the upside of America actually building things at home again, not one that gets whipsawed by what's happening in Europe or Asia.

How the Portfolio Gets Built

Klar starts with a universe of a couple hundred names, all companies that are long the "call option" of re-industrialization. They organize these into four buckets: manufacturing and automation, transportation and logistics, energy and materials, and defense. Traditional sector classifications like GICS didn't capture the opportunity well, so GMO had to create their own framework.

From that universe, the team narrows down to about 35 to 40 holdings using fundamental research focused on quality and value. This isn't a Noah's Ark approach where you own a little of everything. Klar gave a concrete example: in the steel sector, they favor higher-quality firms like Nucor and Steel Dynamics because steel is cyclical, and you want the best-capitalized names to weather the ups and downs. On the value side, he pointed to Fastenal, an industrial distributor they loved from a re-industrialization standpoint but couldn't get comfortable with at launch. When Fastenal reported a disappointing quarter and the stock sold off 20% from its peak, they pounced. The fundamentals hadn't changed, just sentiment, and that's where value investors make their money.

The Picks and Shovels Play in Transportation

The portfolio is heavy on transportation and logistics, with Union Pacific, CSX, and Knight-Swift among the top holdings. Klar uses a picks and shovels analogy dating back to the Gold Rush: instead of trying to guess which factory gets built where, own the companies that win regardless. Rails and trucking benefit from more domestic manufacturing no matter where it happens.

Union Pacific is the fund's top holding for a stock-specific reason beyond the general thesis. The company is in the process of acquiring Norfolk Southern, which would create a truly transcontinental railway stretching from the West Coast to the East Coast. Because the merger faces regulatory uncertainty and will take time, Klar believes the upside isn't reflected in the current valuation at all.

In trucking, a multi-year freight recession has washed out weaker players. The quality companies that survived are in a strong position when rates eventually inflect. Again, the quality principle does real work in shaping actual portfolio decisions, not just marketing copy.

Bipartisan and Built to Last

One of the more surprising findings from GMO's research: American re-industrialization is genuinely bipartisan. Klar has an exhibit with quotes from Democratic and Republican leaders on resilience, and his standard joke is that if you covered up the names, you couldn't tell which party was speaking. The fund wasn't built to depend on who controls the White House or Congress, because the reshoring trend is durational. America spent decades offshoring. That's not coming back in a month or a quarter.

For advisors wondering how to use DRES, Klar sees it as a satellite to tech-heavy core holdings. One client summed it up in a way he loved: there are two big things happening in investing today. One is AI, which everyone is focused on. The other is resilience, which comparatively few people are focused on. DRES is priced at 50 basis points, which Klar made a point of noting is competitive, and he puts his own money in the fund alongside institutional and retail investors.

Key Takeaways

• DRES holds 35 to 40 names across four custom categories: manufacturing and automation, transportation and logistics, energy and materials, and defense. Close to 90% of portfolio revenue comes from the US, versus less than 60% for the S&P 500.
• Of the top 10 holdings in the S&P Industrials ETF (XLI), DRES has only one overlap. Uber is a top 10 holding in XLI, which tells you a lot about how poorly traditional sector definitions capture the reshoring opportunity.
• Union Pacific is the top holding, partly because its pending acquisition of Norfolk Southern to create an end-to-end transcontinental railway isn't priced into the stock.
• GMO's research found re-industrialization is genuinely bipartisan, making the strategy less dependent on election outcomes than most people assume.
• The fund launched in October at 50 basis points, and Klar invested his own money alongside institutional and individual investors.

Listen to the full conversation on Spotify, Apple Podcasts, or YouTube.