We continue to grow more excited about innovative disruption around “Space”, as it is the next frontier to leverage Moore’s Law, a key driver behind Tech stock valuations and billions of dollars’ worth of venture capital funding. Here’s why:
- Moore’s Law states that semiconductor speed per dollar doubles about every 2 years. Broadly speaking, this has been the case since the 1960s.
- A few current day examples of what that does: enables smartphones to both get better and more affordable, helps AI grow more intelligent and efficient, and plays a crucial role in giving autonomous vehicle technology a reasonable chance of one day delivering a mass market offering.
- Applying Moore’s Law to “Space” means we can launch increasingly advanced, reusable rockets and satellites into outer space or low-earth orbit more often and cheaply. This is very different from the first 50 years of the “Space age”, which used only time-tested (but therefore hardly cutting edge) technology.
The cost of launching rockets has indeed come down which has helped spur more investment in the industry. While many high-profile space companies remain private, from Elon Musk’s SpaceX to Jeff Bezos’ Blue Origin, there’s been a slew of space companies going public via SPACs.
Additionally, the highly anticipated ARK Space Exploration & Innovation ETF (ARKX) just launched yesterday. This actively managed fund is currently invested in just 38 names that fall into four fields: orbital aerospace, suborbital aerospace, enabling technologies and aerospace beneficiaries. Here are the top 10 holdings by weight:
- Trimble (TRMB): 8.6 pct weight
- The 3D Printing ETF (PRNT): 6.0 pct
- Kratos Defense & Security (KTOS): 6.0 pct
- L3Harris Technologies (LHX): 5.1 pct
- JD.com (JD): 4.9 pct
- Komatsu (6301): 4.7 pct
- Lockheed Martin (LMT): 4.6 pct
- Iridium Communications (IRDM): 4.2 pct
- Thales (HO): 4.0 pct
- Boeing (BA): 3.6 pct
- Total weight of top 10 names: 51.7 pct
While it’s getting a lot of buzz, ARKX is not the first space-focused ETF. For example, the Procure Space ETF (UFO) launched in April 2019; 80 percent of the portfolio invests in companies that receive at least 50 percent of their revenue or profits from space-related businesses. For reference, here’s UFO’s top 10 holdings by comparison (out of 32 positions total):
- Eutelsat (ETL FP): 5.2 pct weight
- Garmin (GRMN): 5.2 pct
- SKY Perfect JSAT (9412 JP): 5.1 pct
- Trimble (TRMB): 5.1 pct
- Sirius XM Holdings (SIRI): 5.1 pct
- Weathernews (4825 JP): 5.0 pct
- Dish Network (DISH): 5.0 pct
- SES SA (SESG FP): 5.0 pct
- Iridium Communications (IRDM): 4.6 pct
- Orbcomm (ORBC): 4.5 pct
- Total weight of top 10 names: 49.8 pct
Just two names show up in the top 10 holdings for both ARKX and UFO: Trimble (offers industrial technology solutions such as satellite imagery to help farmers monitor crops) and Iridium Communications (offers voice and data connectivity through its satellite constellation). Even still, here’s how UFO has performed given that it has a longer track record:
- YTD return: +11.2 pct
- 1-year return: +65.9 pct
- Return since its all-time high on 2/12/21: -11.4 pct
Bottom line: both ARKX and UFO provide a lens into how active managers and index providers currently think about constructing a diversified portfolio that leverages space. We’ll continue to monitor how these ETFs and holdings evolve. Whenever major pure-plays go public, such as SpaceX or Blue Origin, that will likely encourage investors to reevaluate companies associated with space. Just consider how valuable traditional automakers have grown with their EV pursuits of late amid Tesla’s outsized market cap and multiple. It’s early days for space, but this is an important emerging and disruptive theme to watch.