ARK Space Exploration & Innovation exchange-traded fund
—the eighth fund from Cathie Wood’s ARK Investment Management–attracted a lot of eyeballs at its launch on Tuesday. But investors found some surprises in the fund’s portfolio: Some popular firms in space-exploration related fields were not included, while other seemingly unrelated names—including half a dozen internet tech giants—make up a significant weight.
That is because ARK’s space fund (ticker: ARKX) isn’t limited to companies directly involved in the space business, but also other innovations that have indirectly enabled the space boom. The ETF owns Google parent
(ticker: GOOG), for example, because it’s a leader in artificial intelligence.
(NVDA), another holding, manufactures computer chips that allow rockets to operate efficiently.
The fund’s second-largest position is another ARK product, the $548 million
ARK 3D Printing ETF
(PRNT). That’s because many rocket parts are 3D printed for reasons related to cost, weight, and durability, says Ren Leggi, client portfolio manager at ARK. To be sure, the 0.66% management fee of the ARK 3D Printing ETF is fully rebated back to ARKX investors. “We are not double dipping,” says Leggi, “You are not paying double-layer fees.”
The fund also holds companies that are well-positioned to benefit from the development in aerospace-related tech. E-commerce giants like
(BABA) are included because they can save delivery costs and generate revenue from drones if that market matures and scales.
(NFLX), another holding, could potentially unlock millions of new users as satellite broadband connects more people to the internet. “There are three billion people who do not have access to internet,” says Leggi. “Satellite connectivity opens up the market. It really is about anything above ground.”
Still, there is one glaring omission in the fund: It doesn’t hold any of the new pure-play space companies set to go public via mergers with special purpose acquisition companies, or SPACs.
Those options would include Rocket Lab USA and Astra, two launch service companies that are currently sending commercial payloads into low Earth orbit. The pair is merging with
(HOL), respectively. BlackSky and Spire Global, two earth imaging businesses, are merging with
Osprey Technology Acquisition
Others include AST & Science, which is merging with
New Providence Acquisition
(NPA). That company is putting up hundreds of satellites to provide mobile phone infrastructure. Momentus, along with Redwire, offer the infrastructure services supporting new commercial space players. Those two are merging with
Stable Road Acquisition
Genesis Park Acquisition
The market capitalization of those seven companies is roughly $16 billion based on the number of shares outstanding for each after their SPAC mergers close. But none of those names are included in the ARK Space fund’s portfolio—at least not yet.
ARK is open to investing in SPACs if the merger target has already been identified, says Leggi, but they need to review more financial data than is typically provided in SPAC merger presentations.
High valuations have also caused ARK to wait on some names. “They fit our theme but from a valuation point, they don’t meet our hurdle rate for the next five years,” says Leggi, noting that the fund looks for companies that can provide investors with 15% annualized returns. “We will be patient and continue to track them. If we get an opportunity, we will leg into it. A lot of them are very interesting,” he adds.
ARK isn’t the only one hesitant to jump into space SPACs. The space fund’s rival, the $129 million
Procure Space ETF
(UFO), also doesn’t own any SPACs. Unlike the actively managed ARK ETF, the Procure fund tracks an underlying index with predetermined rules that prohibit investments in SPACs before the merger is complete.
“There is a tremendous risk to any SPAC,” Andrew Chanin, CEO of Procure ETFs, tells Barron’s. “That a target is announced and the deal doesn’t go through for a multitude of reasons. Then you are looking at a company that doesn’t have any space exposure other than a proposed target.”
The Procure ETF has added newly public stocks to its holdings shortly after the SPAC merger was completed, such as space tourism pioneer
The Procure ETF claims to be a “purer” play. More than 80% of its portfolio–per index mandate–has to be invested in companies whose majority revenues are derived from space-related businesses and activities. The remaining 20% are in diversified aerospace defense names such as
(LMT), which also generate a significant amount of revenue–albeit not the majority–from their space-related units.
“Anyone can argue that almost every publicly traded company has some exposure to space, or space plays a role in that company’s ability to succeed,” says Chanin. “For us, it’s not about making nuanced arguments about how maybe a company could potentially benefit from space.”
Sources: Bloomberg, Barron’s calculations
Despite their differences, both funds share the same top holding,
(TRMB), with an 8.6% weight in the ARK fund and a 5.2% weight in the Procure fund. The company is tapping into multiple space-related areas, offering software, data, and sensors for drones, as well as fleet management services for space construction and logistics.
Procure’s space fund was launched in April 2019. It dipped 2% in 2020, while the
returned 18.4%. Year to date, the Procure fund has gained 11.1%, beating the broader index by five percentage points.
The ARK space fund finished its first trading day on Tuesday down 1%. The S&P 500 fell less than 1%.
And although neither funds have exposure to space SPACs, investors can still own a piece of them by buying shares of their SPACs. Barron’s recently wrote positively about Rocket Labs, believing it’s the best option for growth investors looking for new space exposure. The company is already carrying payloads into space and has the ability to build and manage satellites.
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