almost 3 years ago • 4 mins
Ark Investment Management’s Space Exploration and Innovation exchange-traded fund (ETF) began trading on Tuesday – but some of its stock picks are more reminiscent of The Waltons than The Jetsons.
Investing in space has an obvious allure. It’s a bet on a sci-fi-style future offering limitless potential should humanity succeed in transcending its Earthbound state.
But there’s one big catch: there are currently very few publicly traded firms operating in the sector. Both Tesla CEO Elon Musk’s SpaceX and outgoing Amazon boss Jeff Bezos’s Blue Origin are busy launching satellites and helping NASA plan its next trip to the moon, besides harboring grand lunar plans of their own. Neither company, however, is listed on public stock markets – meaning their shares are unavailable to the likes of you and me.
Marching into this exciting but speculative sector comes Ark, the poster child for exciting but speculative investments. It’s a match made in heaven – or at least in low Earth orbit.
The actively managed Space Exploration ETF (ticker: ARKX) is Ark’s first new fund since 2019. In that time Ark and its founder Cathie Wood have gone from virtual unknowns to household names. That’s mainly due to the spectacular 149% return racked up by Ark’s flagship Ark Innovation ETF (ticker: ARKK) in 2020, along with an accompanying surge in assets under management from $3 billion to $47 billion.
So far, so enticing. But after taking a closer look at the Space Exploration fund’s holdings, I started to scratch my head.
Its three biggest investments are satellite services company Trimble, a Californian arms firm called Kratos Defense & Security Solutions – and Ark’s very own 3D-printing ETF (ticker: PRNT). Yes, this Ark ETF invests 6% of its money in another Ark ETF.
3% of the fund is invested in internet giant Amazon and 4.9% in its Chinese ecommerce rival JD.com. There’s 4.7% in Komatsu, a Japanese creator of construction equipment, and 3.2% in American agricultural machinery maker Deere & Co. Perhaps least likely of all to get you to Mars is the 1.3% Ark’s invested in TV streaming service Netflix.
Of the fund’s 38 holdings at launch, almost none are what the average person would think of as a space stock. So what on Earth (or off it) is going on? Well, Ark appears to be treating the theme of “space exploration” very broadly – investing in companies “leading, enabling, or benefitting from technologically enabled products and/or services that occur beyond the surface of the Earth”.
Yes, this includes companies that “launch, make, service, or operate platforms in the orbital space, including satellites and launch vehicles”. But it also encompasses suborbital aerospace firms, enabling technologies like 3D printing and robotics, and beneficiary sectors like agriculture or construction which may be able to operate more efficiently with improved satellite communications.
Still, half a dozen space-focused companies are expected to hit stock markets in the coming months following deals with special-purpose acquisition companies (SPACs) – like Redwire Space and Astra. Ark may well be planning to shift some of its current blue-chip bets into these once they land, but for now the ETF has only two SPAC holdings: Reinvent Technology Partners and Atlas Crest Investment.
Ark’s fund isn’t the first ETF focused on the final frontier. The Procure Space ETF (ticker: UFO) has risen 12% over the past two years, while the SPDR S&P Kensho Final Frontiers ETF (ticker: ROKT) is up 30% – although both trail the benchmark S&P 500 index’s 37% gain in that period.
Each of these funds have chosen to tackle the lack of listed space companies somewhat differently: the Procure ETF is weighted towards satellite communications stocks like Eutelsat and Iridium, while the Kensho ETF is big into traditional aerospace-cum-defense companies like Northrop Grumman and Raytheon.
It’s fascinating to see how differently the top holdings of the three space-focused funds stack up. If you want to invest in a space ETF, it’s important to first take some time to decide which of their approaches you prefer – bearing in mind the Ark-specific points I’ve made above.
Equally, you may decide that the space sector is just too lacking in listed companies to start the countdown just now – and, like me, consider holding off for a better launch window.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.