A spaceship for ETFs

ETFs, a basket of securities that trade on an exchange, are moving into space. Space-related exchange-traded funds (space ETFs) are soaring on the New York Stock Exchange; well-known providers of space ETFs are SDPR and Procure, offering S&P Kensho Final Frontiers ETF (ROKT) and Space ETF (UFO) respectively.  Most recently, Ark Investment, an investment management firm owned by Cathie Wood, joined the space war, filing to launch the ARK Space Exploration ETF (ARKX)- an ETF made up of US and global companies engaged in space exploration and innovation. Bank of America has forecasted that the space industry will triple within a decade from its current valuation of between £155 billion and £190 billion. Whilst a number of factors suggest that the global space industry could be one of huge growth in coming years, it is nevertheless important to consider the strength and validity of the reasons behind the recent rally.

 

The news of the ARKX ETF could be described as having a knock-on effect on a number of space-related securities. UFO has soared 4.6% since the filing of ARKX, while ROKT has seen an increase of 2.5%. The spikes are also evident in individual firms’ share prices. Virgin Galactic, a spaceflight subsidiary of Virgin Group, skyrocketed nearly 20% on 14th January, the day after Ark’s filing. Maxar Technologies, a US space technology company, also experienced an enormous growth of 19.6% on the same day.  Given that Virgin Galactic and Maxar Technologies are both the major holdings of UFO and ROKT, the rallies of these ETF’s were attributed to these individual securities.

 

The engine that set off space ETFs is widely regarded as being Elon Musk’s SpaceX, a private spacecraft manufacturer, as highlighted by Barron’s (sister publication to the Wall Street Journal). According to Barron’s, the company’s innovative use of reusable rockets drove down the cost of reaching low-earth orbit. The falling cost has opened up opportunities for space companies, hence the influx of growth firms in the industry in recent years. This is supported by average annual growths of 10.6% in space firm’s revenues in the last two years.

 

However, the sky is always the limit, and the enthusiasm may eventually wear away from the space industry. The rallies of space ETFs and stocks can be largely attributed to Ark Investment’s filing, and perhaps more specifically Cathie Wood, the owner of Ark Investment. Mrs. Wood is widely regarded as being the reason behind the furore surrounding Ark Investment- having previously guided Ark to the title of being a top 10 of ETF issuer globally. Having the “Midas Touch”, Cathie Wood surprised investors again with the impact that ARKX has had on the market before it had even been released to the public. This has caused some investors to question the driving factors behind the rally in the market, and lead them to believe that the returns may be short-lived.

 

In conclusion, it is undeniable that Space ETFs are here to stay as the number, and size of, space-related firms continues to grow. However, their reputation and returns thus far may be too reliant on the reputation of Ark Investment’s previous endeavours, and the attention that Ark have driven towards the industry and funds themselves. In the future, we may see that the rocketing prices of ETFs were only a moon-shot, and some investors may be brought back down to reality.

 

By Sam Cheng

Sector Head: Daniel Regan

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