In May last year, Elon Musk’s SpaceX became the world’s first private company to launch astronauts into space. The successful mission, aboard the Crew Dragon spacecraft, was heralded a triumph in the US with commentators predicting a new and thrilling era of human space travel funded by private enterprise.
One commentator quipped that it would not be long before Tom Cruise was thrust into orbit to film a new movie – Top Gun In Orbit.
Although there was a strong nationalistic undertone to Crew Dragon’s triumph, there is no doubt that the commercial space industry is now very much in growth mode.
Stellar returns?: The commercial space industry is now very much in growth mode
It is attracting billions of pounds of funding from venture capitalists and big corporations who see space as an exciting new frontier to be conquered – and from which to make juicy profits.
It also presents exciting investment opportunities for long-term investors, although not, as Toy Story’s Buzz Lightyear would say, in the realms of promising ‘to infinity and beyond’ returns. However enthusiastic experts are about space as an investment theme, it’s not without risk. Many of the companies are private, not public, and some will invariably fall by the wayside.
Interest in space as an investment is not just being fuelled by a burgeoning market in space travel. Business sees exciting potential in the wider commercialisation of space – through the use of constellations of satellites to help bring broadband to parts of the world currently not served, and to drive forward future technologies such as artificial intelligence.
There is also interest in the development of reusable rockets, supporting innovation in fields such as logistics and – yes – even asteroid mining. These rocks are believed to be a rich potential source of gold, diamonds and other vital metals and minerals.
The latest analysis from the US investment bank Morgan Stanley suggests that the global space industry could generate revenues of $1.1trillion (£800billion) a year by 2040, compared with $350billion currently. It estimates that satellite broadband will represent at least 50 per cent of this projected growth, with satellites that enable broadband internet service helping to drive down the cost of data, just as demand explodes.
‘The demand for data is growing at an exponential rate,’ says Adam Jonas, an equity analyst at Morgan Stanley, ‘while the cost of access to space – and, by extension, data – is falling by an order of magnitude.
‘We believe the largest opportunity comes from providing internet access to under and un-served parts of the world.
‘But there also is going to be increased demand for bandwidth from autonomous cars, the ‘internet of things’, artificial intelligence, virtual reality, and video.’ Enthusiasm for space as a key investment theme – now and in the future – is infectious.
A number of asset managers, including Montanaro Asset Management and Seraphim, have jumped on board with new investment launches that have a strong space theme underpinning them.
Exchange-traded fund specialist HANetf has also just launched the Procure Space Fund. Listed on the London Stock Exchange, it invests in some 30 companies that generate a chunk of their revenues from space-related businesses.
Top holdings include US technology company Trimble and North American satellite television company Dish Network. It also has a holding in space tourism company Virgin Galactic, founded by Richard Branson. On Friday, Virgin was granted a licence to fly customers to the edge of space.
Hector McNeil, co-founder of HANetf, believes the space economy is increasingly part of people’s everyday lives. ‘The commercialisation of space is upon us,’ he says. ‘Satellite systems and technologies are a major growth market, as the success of businesses such as Uber and Deliveroo demonstrates.
‘GPS is central to their success, just as satellites are vital for providing higher bandwidth and coverage in broadband and telecoms.
‘Indeed, the London Stock Exchange now uses satellites to regulate share trades and confirm the time that share transactions are executed.’
Montanaro, a company that specialises in investing in smaller firms, will this week launch a new fund – Global Innovation – which will invest a slice of its portfolio in firms providing services to support the growth of the space ecosystem. Guido Dacie-Lombardo, who will manage the fund, believes the space industry is on the cusp of being a key technology-related investment theme.
‘Space as a concept is alluring to the imaginative investor,’ he says. ‘But for much of history it has been the domain of government agencies, such as the National Aeronautics and Space Administration (NASA) in the US.
‘Yet, now, space as an investment theme is becoming far more interesting as it broadens in scope.’
Dacie-Lombardo argues that major advances in the development of reusable rockets are rapidly bringing down the cost of accessing space. Indeed, SpaceX’s pioneering commercial launch of astronauts into space last year used a ‘Falcon 9’ rocket that was successfully returned to earth.
He believes such rockets, pioneered by the likes of Amazon offshoot Blue Origin as well as SpaceX, will allow exciting opportunities to piggy-back off this technology.
Montanaro’s approach to space investment will not be gung-ho. It will steer clear of pure-play space companies, which Dacie-Lombardo believes ‘are still grappling with challenging cost curves and will require significant capital investment’.
Instead, it will look to invest in support companies – the likes of SiTime (listed on the Nasdaq stock market in the US) which sells its cutting-edge silicon-based timing chips to SpaceX because of their resilience in extreme environments.
Those with a strong socially responsible approach to investing will be heartened by Montanaro’s stance on ESG (environmental, social and governance) issues. It will not invest in companies involved in space technology earmarked for military use.
Probably the boldest space-related fund launch is that of investment trust Seraphim Space. Seraphim says it is the world’s number one space tech investor and has backed more than 60 space oriented start-up businesses over the past five years.
It is hoping to create a £250million investment trust, with stakes in 19 companies (worth just under £100million) forming part of the portfolio from day one. It has set itself an ambitious target of generating annual investment returns over the long term of 20 per cent.
Retail investors can buy shares in the new trust via a wealth platform such as AJ Bell, Hargreaves Lansdown or Interactive Investor – or by completing a prospectus available at seraphim.vc. The minimum investment is £1,000 and the deadline is July 9, although investors will also be able to buy shares once the trust has launched.
Mark Boggett, chief executive of Seraphim, believes space represents a ‘multi-decade’ growth story, with two key drivers behind this.
DON’T GET CARRIED AWAY, SAY EXPERTS
Experts believe space represents an attractive new investment theme, but they urge investors not to get too carried away.
Ryan Hughes, head of active portfolios at wealth manager AJ Bell, describes it as a ‘niche’ area that ‘is in the very earliest stages of infancy as an investable area’.
He adds: ‘It is high risk and therefore should be added only to an investor’s existing, well-diversified portfolio. It should also be viewed as a long-term investment given many of the companies are early stage businesses.
‘Yes, hugely exciting, but we can be certain there will be many bumps along the way.’
Dzmitry Lipski, head of fund research at Interactive Investor, says the Seraphim trust launch could be a ‘fun slice’ of a broadly invested portfolio.
What he likes about this trust in particular is that it allows investors of modest means to get exposure to a portfolio of companies that they wouldn’t otherwise be able to access because they are privately rather than publicly owned.
He says: ‘Given Seraphim will be listed on the stock market, investors will be able to buy and sell shares when they wish, even though the portfolio’s holdings are unlisted.’
Kerry Nelson, managing director of financial adviser Nexus, says space is an investment theme she will be looking to introduce to clients. She describes the new Procure Space Fund as one of ‘many exciting thematic investments’ currently available.
Existing shareholders in Scottish Mortgage and Edinburgh Worldwide – both managed by Baillie Gifford – have exposure to space companies.
Scottish Mortgage is an investor in private companies Relativity Space (a rocket manufacturer) and Elon Musk’s SpaceX.
Edinburgh Worldwide also holds these, as well as satellite specialists Spire and Astranis Space Technologies. AJ Bell’s Hughes says these trusts may be a more suitable way for investors to get space exposure.
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