Space sector offers opportunities for traders braving final frontier

Space traders are like Jeff Bezos: they love to geek out over 1970s sci-fi and are convinced that humanity’s future lies in the stars.

One difference: they do not have a net worth of more than $200bn and an actual rocket ship, which will take the world’s richest person beyond the Karman line on Tuesday. Instead they are armed with Robinhood trading accounts, letting them get a taste of the final frontier by buying stocks and other securities related to the space industry.

Space-themed exchange-traded fund (ETFs), start-ups and new trading technology are making it easy for people to bet on the future of the extraterrestrial economy. Bank of America estimates the space industry is valued at almost $415bn, with the potential to grow to $1.4-trillion by 2030.

Spectators have lavished attention on Bezos’s upcoming trip on Tuesday and fellow billionaire Richard Branson’s flight earlier this month. But the scope and scale of the field is far wider than their voyages.

In March, superstar investment manager Cathie Wood launched ARK Space Exploration ETF (ARKX), her firm’s first new exchange-traded fund in two years. The actively managed vehicle tracks space-exploration and innovation companies. It has already attracted more than $600m in assets, a top debut for the year.

Earlier this year, satellite-launch services company Astra Space began trading on the Nasdaq after merging with the special purpose acquisition company Holicity. Other firms such as launch company Rocket Lab and space-infrastructure firm Redwire have also announced plans to go public. All of this is delighting retail investors with interstellar convictions.

“I am probably too old to ever go to space,” said Alex Greenfield, a 48-year-old screenwriter and new space investor who lives in Mount Snow, Vermont. “But goddamn, I can help the industry that plays into Star Wars and Star Trek and all of this pop culture stuff we had growing up. And for me, that’s exciting.”

Like many Americans, Greenfield first started investing using the trading-platform Robinhood last year when the Covid-19 pandemic hit. Unlike many Americans, Greenfield says his first market move happened when he was high, watching the HBO sci-fi series Westworld and wondering what it would take to build a robot.

That eventually led him to space. In January he bought $500 of the Procure Space ETF (UFO). The $120m ETF includes companies that bring in a majority of revenue from space-related industries.

During a market dip, Greenfield put in an additional $150. He bought $500 of Wood’s ARKX after its launch and has taken his investment up to about $1,000.

Greenfield knows investing in space is a long (daresay, moon) shot. But the screenwriter says he is hopeful new technologies that do not at first seem space-centric will advance the sector. He is optimistic about 3-D printing in space, which could drastically cut the cost of shipping goods needed to build human environments on other planets.

“Some people are going to put the right money into the company that finds the $1-trillion unicorn, and those people’s children are going to be Carnegies,” he says.

That ultra-long time horizon aligns with some financial advisers’ approach to space, which they say has potential.

“It’s got an opportunity for enormous growth in ways that we can’t even imagine,” says Noah Damsky, founder of Marina Wealth Advisors in Los Angeles. “Like bitcoin a number of years ago, it could be something that we can’t even fathom.”

Getting in early on an emerging sector can boost returns of an overall portfolio, according to Ryan Greiser, a financial planner at Opulus, an advisory firm in Doylestown, Pennsylvania.

He also senses an opportunity as a number of technologies seem to be colliding, accelerating trends that could make space travel more profitable. This includes the convergence of aerospace with artificial intelligence, robotics, 3D printing and sensor chips.

Risks loom. Rockets fail. On July 13, the US Securities and Exchange Commission (SEC) sued space-cargo firm Momentus and Stable Road Acquisition Corporation, a special purpose acquisition company. The regulator alleges that Momentus lied about its technology, including a false claim that its propulsion system had been “successfully tested” in space. Stable Road repeated Momentus’s misleading statements in public filings, while failing to conduct adequate due diligence, according to the SEC.

Financial advisers also caution that space is an emerging sector with the possibility for high volatility and failure. For instance, shares of Branson’s Virgin Galactic Holdings have fallen every trading day since his space trip, wiping out all of its advance since early June. Space ETFs have bled cash over the past two months.

Investors also disagree over what truly constitutes an investment in space. Some were surprised to see that Wood’s ARKX fund, for example, included Netflix, Amazon, Alphabet and even Deere & Co, the company that manufactures large agricultural tractors.

“We’ve made a lot of memes and jokes about John Deere,” says Kyle Walton, an industrial engineering student from Wichita, Kansas, who runs a space-investing Facebook group and owns about $2,000 of ARKX.

While he is willing to give ARKX the benefit of the doubt for about a year, he says his preference is UFO, which he considers more of a pure play on the sector because of its stricter, space-orientated requirements. Walton owns about $3,700 of UFO.

“There’s more than one way to run a strategy connected to space and space exploration,” said Todd Rosenbluth, director of ETF research at CFRA. “The ARK strategy has taken a broader lens of ways of companies that can potentially benefit, which includes some less obvious companies.”

Consider John Deere. The firm’s tractors will not be shooting skyward any time soon. But the firm has worked with Nasa’s Jet Propulsion Laboratory to develop self-driving tractor technology. Deere has also been steadily investing in GPS and drones, which of course have space applications.

Just like on Earth, splashy consumer-facing companies may make headlines. Virgin Galactic plans to start taking passengers to suborbital space next year, for a price of more than $250,000 a seat. But often it is the behind-the-scenes, business-to-business firms that have the potential to make the big money.

“Space tourism gets a lot of talk,” says Tess Hatch, a partner at Bessemer Venture Partners who focuses on space investment. “But there is this entire economy — the rest of the market — and it’s rockets, it’s satellites, it’s the infrastructure to communicate, to manufacture the satellites.”

In short, the things that will make daily life possible in the future Galactic Empire.

Bloomberg News. More stories like this are available on bloomberg.com