The space trade is skyrocketing higher.
The Procure Space ETF (UFO), the first-ever global ETF to give investors access to the growing space industry, has soared nearly 20% in November amid some positive tailwinds including SpaceX’s historic Crew-1 launch with NASA, the first of its kind conducted by a private company.
Though some of the upside is likely tied to hopes around Joe Biden’s presidency and how it could progress the space race, the impact could be more nuanced than some may think, Andrew Chanin, co-founder and CEO of ProcureAM, told CNBC’s “ETF Edge” this week.
“We’re actually really encouraged, although the previous administration has really done a lot to push the space industry forward, both from a commercial and military and defense standpoint,” Chanin said Monday.
“Space … isn’t something that is bipartisan. It’s nonpartisan,” he said. “So, we believe that space is something that’s here to stay and should and will be potentially a priority for any administration in the future.”
President-elect Biden is expected to toe the Democratic Party line on space policy, likely prolonging the new age of human spaceflight and steering NASA and the National Oceanic and Atmospheric Administration towards studying the impacts of climate change.
For UFO — which requires 80% of its holdings to be “pure plays” on space, or derive 50% of their revenues from space-related businesses — a “new set of eyes” may be beneficial, Chanin said.
UFO’s top five holdings are Orbcomm at roughly 6.5%, Virgin Galactic at over 6%, SES at nearly 6%, Maxar Technologies at about 5% and Trimble at almost 5%. Communications, aerospace and defense, and wireless communications plays account for more than 70% of the 31-stock portfolio.
“Communications is one of the largest revenue-generating areas for the space industry today. So, think satellites, think ground stations and the various equipment that relies upon satellite signals,” Chanin said.
“This interview likely wouldn’t be happening today without satellites helping in that process,” he said. “So, as technologies like 5G, cloud computing, internet of things and so on start to rely more and more on using satellites to transfer data from point A to point B, it’s something that we think could become a very large player of space.”
It’s worth considering adding a thematic ETF such as UFO to more traditional portfolios, Dave Nadig, chief investment officer and director of research at ETF Trends and ETF Database, said in the same “ETF Edge” interview.
“I love products like this. I think they give you a real opportunity to make a little satellite play — pardon the pun — in your portfolio on something that you may believe in,” Nadig said.
“I do think this is well-positioned for a Biden administration, not so much because I expect all of a sudden there to be a trillion-dollar space budget, but because I think one of the things that drives these companies is actually international cooperation,” he added. “A lot of the companies that are driving international space development happen to be U.S. companies. I suspect in a Biden administration we’re going to see not just a focus on [research and development] and traditional NASA-style space exploration. I think we’re going to see a focus on international cooperation around infrastructure.”
Moreover, through UFO, investors can get “accidental exposure” to both strengthening themes such as aerospace and technology stock they may not have otherwise bought, Nadig said.
“I think it’s worth taking a look at not just for the theme itself, but for those individual companies,” he said. “Many of these smaller satellite companies you have no exposure to unless you’re in the Russell 3000. … Some of these are small- and mid-cap names that just are not household, in-every-portfolio kinds of names. So, thematic funds like this are a great way to sort of re-weight yourself towards innovation.”
UFO climbed a fraction of a percent on Friday. It is down about 5% year to date.