To paraphrase Arthur C. Clarke, it’s as equally fascinating to believe that we’re alone in the universe as it is to think we’re not. What used to be the domain of conspiracy theorists has now become a popular topic to discuss given the military has now acknowledged the existence of unidentified flying objects (UFOs). Perhaps these craft are the manifestations of some artificial super intelligence (ASI) checking in on us, or perhaps they’re the creators of the simulation checking in. Whatever the case may be, mankind has always looked to the skies for inspiration. These days, investors are looking to the skies for exponential returns.
Whenever we start looking at a new tech investing theme, we’ll always start by looking for exchange traded funds (ETFs). In the case of space, there are two ETFs available, with neither having meaningful assets under management (AUM).
- Procure Space ETF (UFO) – $42 million AUM
- SPDR® S&P Kensho Final Frontiers ETF (ROKT) – $11 million AUM
Having a sizable amount of assets in an ETF is important because that’s how the ETF provider pays their bills. If sufficient AUM isn’t there, the ETF won’t survive very long. While there’s no ideal minimum, anything under $100 million in AUM just doesn’t have the sort of traction we’d expect an ETF to have. Today, we’re going to look at these ETFs in the spirit of learning about what they’re holding as opposed to something we’d want to invest in.
Several years ago we wrote a piece titled Investing in the Space Industry with “Space Stocks” in which we talked about how some analysts consider the FAANG stocks to be “space stocks.” That’s far-fetched, no matter what definition you use. Ideally, we want to find companies that derive nearly all their revenues for things they’re doing above the Karman line.
As we’ve noted many times before, index providers can rarely agree upon which stocks to include in thematic indices. For these two space ETFs it’s no different. Each index provider has different method of determinng what constitutes a “space stock.” There are 61 stocks found in both ETFs, but only 10 overlapping names:
Of the ten stocks found in both ETFs, most wouldn’t’ be consider pure-plays. Large defense contractors and conglomerates make up the majority – Northrop Grumman, Lockheed Martin, Honeywell, L3Harris, Raytheon, Ball Corporation, and Boeing. That leaves us with three names.
Out of the 10 names these two index providers could agree upon, only three could be considered pure play stocks, and one is in the process of being acquired. What we will do next is review the remainder of the names looking for anything interesting.
The SPDR® S&P Kensho Final Frontiers ETF
In a previous piece titled Kensho Technologies – Creating Stock Indices Using AI, we talked about how Kensho uses natural language processing to scan through a company’s SEC filings to look for keywords that may describe what they do. The algorithms seem to like the “Aerospace & Defense” industry, which is where ten of the remaining companies fall under. In all cases, these companies dabble in space-related stuff as opposed to being pure-play suppliers to the space industry. After eliminating all the aerospace and defense companies, we’re left with nine stocks remaining.
Semiconductor manufacturer Analog Devices does some work in defense and aerospace, but they would hardly be considered a space stock. The same holds true for TTM Technologies (prints circuit boards), Ametek (manufactures electronics), and Amphenol (electronics connectivity). The remaining five stocks in the index seem even less related to space – from IT consulting to industrial machinery. Overall, the ETF isn’t an investment vehicle that gives us the exposure to the space industry we’re looking for.
The Procure Space ETF
The Procure Space ETF is based on the underlying S-Network Space Index which uses a rules-based methodology to identify companies involved in “space-based functions.” This includes companies that rely on satellites to deliver their content to consumers, names like AT&T, Comcast, Dish Network, Sirius XM, and Garmin. None of these stocks provide the sort of pure-play exposure we’re looking for.
After we dispense of French defense contractor Thales Group, and the world’s largest airliner manufacturer, Airbus, we’re left with 15 names.
Several years we wrote about 10 Satellite Stocks for Your NewSpace Portfolio, and four of those can be found in the Procure Space ETF – Iridium, Eutelsat, SES, and Viasat. (We’ll revisit all these satellite stocks in a coming article.) Another stock in the ETF is Orbcomm, a firm we wrote about in a piece titled Investing in IIoT and Newspace with ORBCOMM Stock. We’re then left with nine names.
Speedcast is a bankrupt Australian satellite communications company which probably ought to be given the boot. Speaking of boots, there are two names from Italy – Avio which claims to be “a pure player in space launchers” and Leonardo S.p.A which is one of the largest defense contractors in the world. On a side note, here’s an insightful diagram we found in Avio’s investor deck:
Gilat Satellite Networks sells satellite ground stations and related equipment. Japan’s Sky Perfect claims to be Asia’s largest satellite communication and multi-channel pay TV company. Also in the Land of the Rising Sun is Weathernews, a company that provides weather data, and IHI Corporation, a large Japanese engineering company that dabbles in a bit of everything.
Finally, we have Echostar, an American company that’s a worldwide provider of satellite communication and Internet services, and Trimble, which also dabbles in a bit of everything.
Aside from the satellite companies we mentioned, and perhaps Italy’s Avio, none of the other names we’ve talked about today seem to merit a second look when it comes to finding pure-play space stocks that we might want to add to our portfolio.
Even if these ETFs had amassed meaningful amounts of AUM, they still don’t provide the sort of pure-play coverage we’re looking for in the up-an-coming space industry. Most of these companies combine some space-related activities with aviation and defense, two industries we’re not looking for exposure to. In coming articles, we’ll dig deeper into some of the satellite stocks we’ve uncovered to see if any merit adding to the Nanalyze Disruptive Tech Stock Portfolio.
Pure-play disruptive tech stocks are not only hard to find, but investing in them is risky business. That’s why we created “The Nanalyze Disruptive Tech Portfolio Report,” which lists 20 disruptive tech stocks we love so much we’ve invested in them ourselves. Find out which tech stocks we love, like, and avoid in this special report, now available for all Nanalyze Premium annual subscribers.
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