Space Industry ETFs
What is a space ETF, the top space ETFs and the pros and cons
👋everyone,
Remember when space exploration was just NASA's domain? Those days are long gone.
Now, we're seeing private companies launching rockets, planning Mars missions, and even offering space tourism. This shift has opened up exciting investment opportunities through Space ETFs (Exchange Traded Funds).
In this guide, I’ll tell you everything you need to know about Space ETFs including:
- What is a Space ETF
- The must know, top Space ETFs you can invest in today
- A closer look at an example together
- The potential risks and downsides
What is a Space ETF?
Space ETFs are just like any other ETF in the sense that they’re a collection of stocks from different companies. In this case, these companies are involved in the space industry. Instead of trying to pick individual winners (which can be risky), you're investing in multiple companies at once.
Here's what makes Space ETFs interesting:
- They spread your risk across many companies (just like not putting all your eggs in one basket)
- You can buy and sell them easily through your regular brokerage account
- They give you exposure to different aspects of the space industry
How companies get involved in the space industry
Space companies are engaged in a wide range of space-related activities, including:
- Manufacturing of rockets and satellites: Companies like Lockheed Martin and Boeing play a crucial role in developing and manufacturing launch vehicles and spacecraft.
- Satellite communications and technology: Iridium Communications and Globalstar provide satellite-based communication services, while companies like Maxar Technologies specialize in Earth observation and geospatial data.
- Space tourism: Virgin Galactic and Blue Origin are pioneering commercial space travel, offering suborbital flights to space tourists.
- Deep space exploration: Companies like SpaceX are developing technologies for deep space exploration and potential colonization of other planets.
The Must-Know Space ETF Players
Let's look at the main Space ETFs you can invest in today. Here’s a summary of some of the top Space ETFs:
👀 A closer look at an example
Let’s take a closer look at an example of a space ETF to get a better understanding of what a typical ETF might comprise of.
ARKX (ARK Space Exploration & Innovation ETF)
ARKX, or the ARK Space Exploration & Innovation ETF, is an actively managed exchange-traded fund (ETF) launched by ARK Invest on March 30, 2021.
1 year performance December 2023 - 2024
The fund aims for long-term capital growth by primarily investing at least 80% of its assets in domestic and foreign equity securities of companies involved in space exploration and innovation. This includes companies engaged in orbital and suborbital aerospace activities, enabling technologies, and those that benefit from aerospace operations.
Some of the companies included in the ETF are:
- Rocket Lab USA Inc. (RKLB): A leader in small satellite launches.
- Kratos Defense & Security Solutions Inc. (KTOS): Provides technology solutions for defense and security.
- Iridium Communications Inc. (IRDM): Operates a satellite communications network.
- Trimble Inc. (TRMB): Develops technology solutions for various industries, including agriculture and construction.
- AeroVironment Inc. (AVAV): Specializes in unmanned aircraft systems and electric vehicle technologies
Why Consider Space ETFs?
The space industry is growing like crazy. Morgan Stanley thinks it could be worth over $1 trillion by 2040. We're talking about growth from $630 billion in 2023 to $1.8 trillion by 2035 - that's a 9% annual growth rate, which is pretty impressive considering the US economy typically grows around 2-3% per year.
What's driving this growth?
- More demand for satellite services (think internet, GPS, Earth observation)
- Space tourism taking off (pun intended)
- Government and private investment in space exploration
- New technologies making space more accessible
A Word of Caution 🤔
Just like any investment, Space ETFs come with risks.
Not every company in these funds is directly launching rockets or building satellites. Some are more loosely connected to space, like companies making components or providing services. Space ETFs often focus on a narrow sector, making them more susceptible to market fluctuations and industry-specific challenges.
The space industry also faces significant technical hurdles, as evidenced by high-profile failures like rocket explosions or unsuccessful landings. These incidents can have severe financial implications for companies in the sector.
Lessons from the Challenger Space Shuttle Disaster
The Challenger space shuttle disaster was a tragedy that occurred on January 28, 1986, when the NASA Space Shuttle Challenger broke apart 73 seconds after liftoff, resulting in the deaths of all seven crew members aboard.
Within minutes of the explosion, which occurred at 11:39 AM Eastern Time, the stocks of four major NASA contractors experienced significant declines: Rockwell International fell 6%, Lockheed was down 5%, Martin Marietta dropped 3%, and Morton Thiokol's trading was halted due to excessive sell orders.
Eventually, the markets singled out Morton Thiokol as the company most likely responsible for the disaster which is a case study in market efficiency but also a cautionary lesson for investors who get involved in highly dangerous - and potentially catastrophic - industries like space.
Best Platforms to Buy Space ETFs
Just like other types of ETFs, you can buy Space ETFs from brokerage firms who sell ETFs. Here are your best bets for buying Space ETFs:
- Vanguard: Known for low fees
- Charles Schwab: No commission on ETF trades
- Robinhood: Simple, user-friendly interface
The Bottom Line
Space ETFs offer an exciting way to invest in the future of space exploration. But remember, this is a long-term play. The space industry is still young, and like any emerging sector, it'll have its ups and downs.
Thanks for reading!
Jason
DISCLAIMER: None of this is financial advice. Finbrain is strictly for educational purposes.