A model of the Orion capsule, which will be tasked with the mission of delivering NASA astronauts to the Moon in 2024 and to Mars at a future date. Orion is manufactured by Lockheed Martin, which is included in several space-focused ETFs. (Photo by Jason Connolly / AFP) JASON CONNOLLY/AFP/Getty ImagesJASON CONNOLLY/AFP/Getty Images
Space may be “the final frontier,” but it’s becoming easier for financial advisors and their clients to invest in humankind’s desire to explore beyond Earth’s atmosphere.
Three new exchange-traded funds (ETFs) focused on investing in space-oriented equities have launched in the past few weeks. The first was ARK Space Exploration & Innovation ETF ARKX-A from New York-based ARK Investment Management LLC, led by Catherine Wood. It started trading on March 30 and already has US$351-million in assets under management (AUM). Its management expense ratio (MER) is 0.75 per cent.
Emerge Canada Inc. launched a Canadian version of the ETF, which is subadvised by ARK Investment Management, that same day – Emerge Canada Space Exploration ETF EAXP-NE, which has a management fee of 0.80 per cent.
The third is Harvest Space Innovation Index ETF ORBT-T, which started trading on April 1 and has a management fee of 0.50 per cent. Michael Kovacs, president and chief executive officer of Harvest Portfolios Group, says it tracks the Solactive Space Innovation Index, which was created by his company and Germany-based index provider Solactive AG.
“We look for long-term growth industries or long-term growth themes,” he says. “We see [the space] industry as fitting into that part of our philosophy right out of the gate. This is a growing area and we want to participate in it.”
Solactive Space Innovation Index includes 40 companies such as Lockheed Martin Corp. LMT-N, Northrop Grumman Corp. NOC-N, Eagle Industry, Parsons Corp. PSN-N, and Keysight Technologies Inc. KEYS-N.
ARK Space Exploration & Innovation ETF includes 39 equities such as space-focused companies like Iridium Communications Inc. IRDM-Q and Virgin Galactic Holdings Inc. SPCE-N, and defence and aerospace stocks such as Lockheed Martin, Kratos Defense & Security Solutions Inc. KTOS-Q and Boeing Co. BA-N. It also has several stocks that rely on communications technology such as e-commerce companies JD.com Inc. JD-Q and Alibaba Group Holding Ltd BABA-N.
There are currently two other U.S.-listed space-oriented ETFs, according to data from Morningstar Inc. Procure Space ETF UFO-Q, launched in April 2019. It has US$132-million in AUM, an MER of 0.75 per cent, and a year-to-date return of 11 per cent. The other is SPDR Kensho Final Frontiers ETF ROKT-A, launched in October 2018. It has US$23.9-million in AUM, an MER of 0.45 per cent, and a year-to-date return of 4.5 per cent.
Space exploration has always fascinated people, and that interest has been reignited with NASA’s landing of the Perseverance rover on Mars in February. But the latest advancements in space exploration and travel are being led by billionaires, with Elon Musk’s Space Exploration Technologies Corp. (a.k.a. SpaceX), Jeff Bezos’s Blue Origin LLC, and Richard Branson’s Virgin Galactic.
“We’ve started seeing big, private enterprises stepping into this space, and I think it’s a game-changer,” Mr. Kovacs says. “That’s why you’re seeing much more interest in this area.”
Private enterprises are bringing down the cost of space exploration and rocket launches, and that opens up myriad opportunities, he says.
Key space-focused areas include defence, satellite systems for communication, navigation and broadband access, and space travel and tourism, he says.
New York-based Space Capital, a seed-stage venture-capital firm, is “focused on investing in the space economy, and that means a lot more than just rockets and satellites,” says Chad Anderson, managing partner.
“We’re very interested in the data that’s coming from space,” he says, noting the firm focuses on global positioning system (GPS), geospatial intelligence, and communication.
What’s piqued people’s interest in the sector is this new “entrepreneurial approach to space – private companies and private capital doing what only governments and defense contractors were doing previously,” Mr. Anderson says. That’s giving access to satellite networks and geospatial data to smaller companies for the first time.
Right now, the main publicly-listed space-focused companies are the incumbents, but more junior companies will hit the public markets soon, he says.
Case in point, iconic Canadian space company MDA Ltd. MDA-T raised about $400-million by listing on the Toronto Stock Exchange. (Its listing went public on April 7.) Known for building the Canadarm, the robotic arm on the International Space Station, MDA also specializes in space robotics, satellite systems, and satellite imagery analysis.
“It’s a really interesting time for Cathie Wood and others to be launching space ETFs because there are only a handful of publicly-traded space companies today, but there are seven that have announced they’re going public via [a special purpose acquisition company] and there’s more coming,” Mr. Anderson says.
The space sector is expected to grow exponentially. A report published last year by Space Capital and Silicon Valley Bank estimates that next-generation GPS technology, geospatial intelligence, and space-based communications have the potential to generate US$1.2-trillion in equity in the next decade.
“GPS is the most successful space technology to date,” Mr. Anderson says.
GPS technology is how smartphones can tell us exactly where we are, how to get to where we’re going, and also spawned successful applications such as Uber, Waze, and Yelp.
The next area of growth is expected to be with geospatial data, he says, which can help monitor crops, track ships and airplanes, measure climate change, help insurance companies evaluate damage and weather events, and can be used in a slew of other applications.
“We are witnessing the birth of the equivalent of location-based services in geospatial intelligence, and there’s plenty more where that came from,” Mr. Anderson says. “The use cases are infinite, and we’re just starting to scratch the surface on what it can be used for.”
Waterloo, Ont.-based SkyWatch Space Applications Inc. is one company making this happen. Space Capital has invested in it through its venture capital fund.
In addition to data and communications, there’s space tourism and satellite maintenance, just to name a few areas of growth in the space sector.
Although Mr. Anderson says “private market investing is where the action is,” more companies are listing publicly. However, using one of the ETFs to add space-related investments to a portfolio is a better bet, he adds.
Ian Tam, director of investment research with Morningstar Canada, says when considering thematic ETFs, advisors and investors should look at metrics such as price-to-earnings, price-to-book value, and price-to-cash flow ratios, he says. That will help compare these ETFs to the market and determine if they’re trading at a high premium.