Reviewing the Stocks in ARK’s Space ETF
Space stocks are like blockchain stocks. You really need to stretch the definition in order to come up with a list big enough to put together an ETF. Some tech themes like fintech or robotics actually have enough constituents to build an ETF. But even then, providers can rarely agree upon what stocks to include.
We’re only invested in one space stock at the moment, and recently came across another we’d like a whole lot more should revenue growth resume. Plenty of space SPACs have been cropping up, nearly all of which we’d strongly recommend risk-averse investors to avoid. The same holds true for the 5 Billion-Dollar Satellite Operator Stocks we looked which have business models with volatile cash flows, heavy debt, and a great deal of risk – operational, regulatory, and Rumsfeld’s unknown unknowns.
There Aren’t Enough Space Stocks
For those of you who think Jim Cramer is the sort of guy you should take investment advice from, he said it best in March – there aren’t enough genuine space-related stocks to make a decent ETF. That was apparent several years ago when we wrote about Morgan Stanley’s Space 20 which was a collection of names that were supposed to benefit from space exploration. At the top of the list were Apple, Google, Microsoft, Facebook, and Amazon. It’s likely one of Morgan Stanley’s clients asked for exposure to the space theme, and their MBAs needed to come up with something to capture those commissions.
Late last year, we asked the question, Are There Any Space ETFs Worth Investing In? In that piece, we compared the Procure Space ETF to the S&P Kensho Final Frontiers ETF. Neither provided us with the sort of pure-play exposure we were looking for. Today, there are three space ETFs with meaningful assets under management (AUM) as follows:
|Procure Space ETF||UFO||130||Companies receive at least 50% of their revenues or profits from space-related businesses.|
|ARK Space Exploration & Innovation ETF||ARKX||63||Engaged in investment theme of space exploration and innovation.|
|S&P Kensho Final Frontiers ETF||ROKT||24||innovation behind the exploration of deep space and deep sea.|
Any ETF with less than $100 million AUM probably isn’t going to pay the bills. ARK’s Space ETF was only released recently, so it’s understandable that they’ll take some time to attract assets, but it’s fair to say that the stocks it contains raise some questions.
The ARK Space ETF Stocks
Defense Contractors – 28.55%
There’s no question some defense contractors stand to benefit from the expansion of the space industry. The only question is which ones and by how much. ARK believes that six names – L3 Harris Technologies (5.42%), Lockheed Martin (4.48%), Thales (4.2%), Airbus (1.66%), Boeing (3.3%), and Honeywell (1.19%) – ought to be included. The ARK Space ETF also contains AeroVironment (1.1%) which primarily manufactures defense drones, Kratos Defense & Security Solutions (5.77%) which largely builds stuff that kills people, and Elbit Systems (1.44%) which is an international defense electronics company.
3D Printing Stocks – 20.30%
Things get complicated when you have an ETF that holds another ETF. The third biggest holding in the ARK Space ETF is the ARK 3D Printing ETF (6.02%). To make matters worse, four of the stocks in the space ETF – Trimble (8.6%), Dassault (2.69%), Ansys (0.99%), and Autodesk (0.85%) – are also contained in the ARK 3D Printing ETF. If we also throw in the Velo3D SPAC (1.15%), around 20% of ARK’s Space ETF is currently made up of exposure to 3D printing stocks. Velo3D is a good example of how 3D printing is being used by space companies, so fair enough. But the way they’ve gone about this makes it appear more to be driven by internal necessity than what’s best for getting investors pure-play exposure to space.
Online Shopping, Entertainment, and Knowledge – 18.74%
Morgan Stanley’s space stock thesis was that internet companies everyone uses today will become increasingly popular as more people come online because of the global internet that’s made possible by all these cheap satellites being launched. People will buy more stuff on Amazon (3.27%), watch more stuff on Netflix (1.81%), and ask Google (2.8%) more questions. The same holds true in China where Tencent (0.98%), JD.com (6.42%), Alibaba (1.59%), and Meituan (1.87%) will all benefit from more people being online. Collectively, all of these companies make up an additional 18.74% of ARK’s Space ETF. At least they drew the line at Facebook.
Chips, Trucks, and SPACs – 14.61%
The space industry needs lots of chips, so it makes sense that the world’s biggest chipmaker, NVIDIA (2.41%), made ARK’s list of space stocks. So did Synopsys (0.97%), a company we wrote about in an article titled Invest in Many Types of AI Chips With One Stock. What may be more of a stretch would be heavy equipment manufacturers Komatsu (4.55%) and John Deere (2.15%) which will presumably benefit from all the connectivity that satellites bring us. Which brings us to the special purpose acquisition companies.
The one space SPAC we love didn’t make ARK’s list. Instead, they opted to include some that we thought really ought to be avoided. We’ve warned our readers about the dangers of electric vehicle stocks, and Workhorse Group (1.28%) was one of them. Why ARK chose to include such a stock in their space ETF is puzzling. Flying electric plane drone thingy stocks like Joby Aviation (1.7%) and Archer (0.65%) both made ARK’s list of space stocks as well. In our article on Invest in Urban Air Mobility with Archer Aviation Stock, we said “investors who want exposure to the urban air mobility market are best served to only invest in companies that have a vehicle that’s currently available for sale.” Joby claims to be generating revenues now, but we’ll need to know how much and from where before we conclude they have traction. How urban air mobility relates to space isn’t clear.
To Buy or Not to Buy
The stocks we’ve looked at so far make up around 82% of ARK’s Space ETF which is enough for us to make a decision. We’re all about pure-plays, so we didn’t find the ARK Space Exploration and Innovation ETF to be very compelling. Additionally, we didn’t think any of the stocks in the ETF merited a further look based on what we’ve already researched while looking for pure plays. We were somewhat surprised to see they only included a single satellite stock – Iridium (4.83%) – but not nearly as surprised to see they included (checks notes) UiPath (0.96%). ARK has a tendency to hold stocks across multiple ETFs, which probably makes their lives easier, but which also speaks to how few pure-play stocks there are in many disruptive tech themes.
We’re only holding one space stock right now because – as Mr. Cramer correctly put it – there just aren’t a lot of space stocks out there. There’s one other we like, but that’s about it. It’s an admittedly risky space to invest in because shooting rockets into the sky and hoping your satellites don’t get taken out by space junk is inherently risky. As risk-averse investors, maybe it’s a good thing there aren’t so many pure-play space stocks we find appealing.
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