Space exploration has returned in force to the popular imagination, thanks in large part to a rapidly expanding space economy. Rising investor enthusiasm has sparked financial institutions to offer methods of exposure to the space sector as a whole.
The latest investor-facing innovation: Procure Space ETF (NASDAQ:UFO), an exchange-traded fund dedicated to companies touching the space economy.
Procure Space was designed to create diversified exposure to the many companies, large and small, that have a presence in space or that support companies embedded in the orbital industry. Based on the S-Network Space Index, the ETF is currently composed of 30 stocks covering a number of key pieces of the space economy.
Launched in April, the ETF's track record to date is still limited. Since its inception, it has traded in a fairly tight range. As of Dec. 13, it was down about 2%, which represents one of the lowest trading points since its debut.
According to Procure Space's creators, its mandate is to focus principally on companies that are currently engaged directly in space-related enterprise:
This mandate is reflected in its top holdings, which include Maxar Technologies (NYSE:MAXR), Garmin (NASDAQ:GRMN), Trimble (NASDAQ:TRMB), Viasat (NASDAQ:VSAT), Eutelsat Communications (EUTLF), Iridium Communications (NASDAQ:IRDM) and Inmarsat (IMASF).
Investing in a booming sector
It seems as if everyone knows the space economy is gearing up for growth. However, according to UBS, financial markets barely comprehend the scale of growth on the horizon:
Procure Space, while focused principally on the opportunities available in the existing space economy, is also looking to the future with an eye toward evolving right alongside the space sector:
Many of these technologies remain speculative, while others are rapidly approaching reality. Virgin Galactic Holdings Inc. (NYSE:SPCE), for example, has become the first publicly traded space tourism company. Clearly, the space economy is changing and growing rapidly. Exposure to the space as a whole thus has some obvious appeal to a reasonable investor.
Missing the private sphere is a problem
While the ETF offers exposure to publicly traded companies serving the space economy, it does not do the same for private companies. That is a severe limitation, given the importance of a number of private names driving and accelerating the development of the space economy.
Obvious examples of private companies at the forefront of the space economy are Elon Musk's Space Exploration Technologies (widely known as SpaceX) and Amazon.com Inc. (NASDAQ:AMZN) founder Jeff Bezos' Blue Origin. Both companies are engaged in rocket development, orbital transportation and satellite communication endeavors, all of which are likely to have an outsized impact on both the expansion of, and public enthusiasm for, pushing further into space.
Of course, the exclusion of private companies is simply a fundamental limitation of an exchange-traded fund, so the Procure Space ETF can hardly be blamed for their absence. SpaceX and Blue Origin do not trade publicly, and therefore cannot be included in any ETF. However, while not a fault per se, this fact does obviously limit its ability to truly reflect the space economy as it is actually developing.
Verdict
Overall, Procure Space represents an interesting, and cleverly constructed, derivative security. It certainly provides exposure to a significant number of key stocks in the space. However, its limitations are quite apparent. Without exposure to the important private market, it cannot be considered a true space economy ETF. Moreover, the heterodox collection of companies and sectors represented in the ETF make it a somewhat unwieldy vehicle.
Investors looking to buy into the space economy would probably be better served looking elsewhere.
