We wrote last month that the Space industry looks to be on an exciting trajectory for investment. It seems we’re not wrong. On January 14, ARK Invest filed with the United States Securities and Exchange Commission (SEC) to launch a Space focussed exchange traded fund (ETF) under the ticker ARKX. ARK is operated by prominent fund manager Cathie Wood and at the cutting edge of disruptive innovation.
Speculation drives stock prices higher
As soon as word of this filing hit, Space stocks were surging purely on speculation. None of the companies likely to be in the ETF have yet been confirmed, but investors are happy to take a punt and Virgin Galactic (NYSE: SPCE) proved one of the most popular.
The rising popularity of Cathie Wood and Chamath Palihapitiya
Cathie Wood has shot to fame in the past twelve months and now loyal investors watch her moves carefully for hints of the next big thing and a potentially lucrative stock to buy. Meanwhile, fellow visionary Chamath Palihapitiya is a venture capitalist and owner of Social Capital. He too has shot to prominence over the past year and between them they’ve got investors globally hanging off their every tweet.
I’ve got the brains
You’ve got the looks
Let’s make lots of money— Chamath Palihapitiya (@chamath) January 5, 2021
Chamath’s company Social Capital aims to advance humanity by solving the world’s hardest problems. This is a massive undertaking but a compelling way to invest and one that resonates with many young investors. ARK Invest’s funds follow a similar vein because they are investing in the companies most likely to disrupt the current way of life and change the future for the better. The two often go hand in hand, with ARK investing in Social Capital’s company launches.
Social Capital uses a process known as blank check investing. It creates a publicly listed company, then merges with a real-world company in an alternative to an initial public offering (IPO). For example, Social Capital created a Special Purpose Acquisition Company (SPAC) called IPOA, which it then merged with Virgin Galactic and the ticker symbol became SPCE. Investors that bought into IPOA before the merger automatically had their shares converted to SPCE shares.
Chamath personally invested $100 Million in Virgin Galactic and is Chairman of its board. ARK Invest also invested in Virgin Galactic, so there is a shared vision between these two big players and it’s worth paying attention to.
SPACs were huge in 2020 and Chamath has become known as the King of SPACs. Through this time, he’s made himself and many of his followers’ considerable riches. Recent headlines even question whether he’s the modern-day Warren Buffett. It should be noted Chamath recently sold 38% (US$98m) of his Virgin Galactic stock to free up liquidity and his ability to invest in further acquisitions.
Rocketing returns
Space exploration and infrastructure projects are expected to be a booming revenue play for savvy investors in the coming years. This move by ARK invest reinforces this belief with clout and it’s likely to prove very popular with investors nervous about investing in individual Space stocks, which are prone to high volatility.
ETFs are generally considered less risky than buying individual stocks because the risk is spread among the basket of stocks held in the fund. In theory this means the reward is unlikely to be as sensational as buying shares in one runaway stock. Nevertheless, ARK funds have enjoyed record returns this year with its ARK Innovation ETF (ARKK) posting a 152% return in 2020.
ETFs currently run by ARK include:
ARK Innovation ETF (ARKK)
ARK Genomic Revolution ETF (ARKG)
ARK Next Generation Internet ETF (ARKW)
ARK Fintech Innovation ETF (ARKF)
ARK Autonomous Technology & Robotics ETF (ARKQ)
ARK Israel Innovative Technology ETF (IZRL)
ARK 3D Printing ETF (PRNT)
ARK’s Space ETF filing
The SEC filing explains that the fund will invest primarily (at least 80% of its assets) in domestic and foreign equities involved in Space Exploration and innovation. That covers companies that are leading, enabling, or benefitting from technologically enabled products and/or services that occur beyond the surface of the Earth.
The principal investment strategy of ARK’s Space ETF will cover four overarching categories:
Orbital Aerospace Companies which includes companies that launch, make, service, or operate satellites or launch vehicles.
Suborbital Aerospace Companies which includes drones, air taxis and electric aviation vehicles.
Enabling Technologies Companies create the technologies that add value to aerospace operations, including artificial intelligence, robotics, 3D printing, materials and energy storage.
Aerospace Beneficiary Companies stand to benefit from aerospace activities, including agriculture, internet access, global positioning system (GPS), construction and imaging.
Which companies will ARK’s Space ETF contain?
At the time of writing Iridium Communications Inc (NASDAQ: IRDM) is 3.33% of Ark Autonomous Technology & Robotics ETF (BATS: ARKQ), while Aerovironment (NASDAQ: AVAV) is 2.45% and Virgin Galactic (NYSE: SPCE) is 2%.
Therefore, some of these would be likely contenders for the Space ETF.
Some of the Space related stocks that rose on news of the impending ETF, such as Virgin Galactic were obvious. But others were a bit of a surprise. The news boosted the shares of three SPACs, namely VG Acquisition (NASDAQ:VGAC), New Providence Acquisition (NASDAQ:NPA) and Stable Road Acquisition (NASDAQ:SRAC).
For Space buffs in the know, this wouldn’t have been such a surprise. VG Acquisition, is owned by Richard Branson, the founder of Virgin Galactic. It’s not yet formally identified its acquisition target, but speculation is rife. Hopeful investors believe it might be the vehicle used to bring Virgin Orbit or Virgin Hyperloop public. Either of these acquisitions could be a potential addition to the ARKX ETF.
New Providence has already identified AST SpaceMobile as its acquisition target. This company plans to build the world’s first mobile telephone network in space. Meanwhile, Stable Road plans to merge with Momentus, a Space infrastructure company.
In addition to these SPACs and Virgin Galactic, American defense contractor Aerovironment (AVAV) saw its share price appreciate 30% in response to the ETF news. This was the same day it announced an agreement to acquire Arcturus UAV, a leader in military unmanned aircraft systems, providing two reasons for investors to snap up Aerovironment stock.
The following also saw their share prices surge in response to the news:
Maxar Technologies Inc (NYSE: MAXR)
Globalstar, Inc. (NYSEAMERICAN: GSAT)
ORBCOMM Inc (NASDAQ: ORBC)
Loral Space & Communications Inc (NASDAQ: LORL)
ViaSat, Inc. (NASDAQ: VSAT)
Speculation on SpaceX
Another Space company garnering constant speculation and interest is Elon Musk’s SpaceX. While SpaceX is still privately owned it can’t be included in the fund, but if it were ever to go public then it would surely be a hot contender. Cathie Wood is a massive Tesla bull and her conviction on the stock, which goes back years, has paid off handsomely in 2020. Even in 2021 she remains confident that Tesla will continue to do well far into the future.
ARKs success is a double-edged sword. In December, ARK took in nearly $6.8 billion in new assets but many of the start-ups and small caps it invests in can’t cope with more than a small investment. This means it must distribute its ETF holder’s cash into bigger companies that may not offer such sensational returns.
ARKs eclectic team of analysts have a wildly varied background from cancer research to artificial intelligence, gaming, healthcare and even sailing. This seems to help them remain focussed on the cutting edge of disruptive innovation. This may support them in keeping their finger on the pulse of money making opportunities far into an intergalactic future.