space
The space sector is now more popular among investors after billionnaires' recent race to space. Image Credit:

Dubai: The space sector has surged in popularity among investors, in part thanks to the recent billionaire space race.

English business magnate Richard Branson launched to space on his Virgin Galactic spaceflight days before US top tycoon Jeff Bezos flew on his private space company Blue Origin’s first crewed mission.

Also, billionaire investor Elon Musk’s aerospace manufacturer SpaceX is sending up a spacecraft while developing a mammoth next-generation rocket.

This is what drove a space craze among investors, prompting them to tweak their portfolios to invest more money into the sector.

Investment
More money rushes into the space sector

More money rushes into the space sector

Private investment in space companies hit $4.5 billion (Dh16.53 billion) in the second quarter, a record for the sector, according to a July report by US-based brokerage firm Space Capital. Space Capital tracks 1,553 companies with $199.8 billion (Dh734 billion) in cumulative global equity investments since 2012.

When you look at the various projections for the future, Morgan Stanley at $1 trillion (Dh3.67 trillion) by 2040, Bank of America at $2.7 trillion (Dh9.92 trillion) by 2045, and they view about half of that growth for the space economy coming also from communications and satellites.

How do I get a piece of this space-related investment action?

Investing in space is no different to investing in other industries, and now that space commerce activity has matured and expanded, there are numerous space companies to invest in. For investors who want to invest in the new space race, there are various companies playing different angles.

Keeping up with a fast-moving, fast-growing technology-centric industry can be exciting for a diligent investor, but not everyone has got time to track which company has accomplished what in the field of aerospace.

As with most industries and sectors nowadays, for those who want to throw a net over the sector rather than fire tracking devices at two or three potential winners, there is the option of using an exchange-traded fund (ETF) or if not, invest directly in space-related stocks.

There are all types of companies that are involved in the space industry, from your major aerospace conglomerates like Airbus and Boeing, and defence contractors like Lockheed and Northrop, and the like, that are absolutely major players in the space industry but space is not necessarily the driving force.

The SpaceX Falcon 9 rocket
Private investment in space companies hit $4.5 billion (Dh16.53 billion) in the second quarter, a record for the sector, according to a July report by US-based brokerage firm Space Capital.

Popular space stocks and ETFs to watch out for now

• Astra Space Inc.

As the space industry matures, industry experts foresee rocket launches being required daily – and that's just the frequency Astra Space is aiming for by 2025.

The company is among several start-ups preparing next-generation rockets that are more efficient and cheaper than their predecessors, experts note.

This US-based satellite launch services company designs, tests, manufactures and operates next-gen space services aiming to enable a new generation of global communications, earth observation, precision weather monitoring, navigation and surveillance capabilities.

Astra may be a smaller player than Elon Musk's SpaceX, but it's actually publicly traded, making it one of the best space stocks to watch right now.

• Procure Space ETF

Here's another way to get exposure to space-related businesses while also getting the diversification that comes with owning more than one name.

By investing 80 per cent of the fund into companies that earn at least half of their revenue or profits from one or more segments of the space industry, the fund isn't too dependent on big defence contractors that derive a lot of revenue from sources other than space.

While it's invested in US industry majors like Lockheed Martin, Raytheon, Boeing Co. (BA) and Northrop Grumman Corp. (NOC), none of them are among the fund's top ten holdings, which makes it a diversified space to invest in.

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English business magnate Richard Branson launched to space on his Virgin Galactic spaceflight days before US top tycoon Jeff Bezos flew on his private space company Blue Origin’s first crewed mission.

• Virgin Galactic Holdings Inc.

This space travel company builds advanced air and space vehicles and aims to provide spaceflight services for private individuals and researchers. Much like the rocket that took Virgin Galactic's founder Richard Branson to the edge of space, the company's stock shot higher in July but has since come down.

Shares trade for around $31 (Dh113.87) per share, well off their July peak of more than $50 (Dh183.66). As exciting as its rocket planes are, consider that the company has no revenue and is operating at a loss.

That's often the case with many start-up companies and isn't necessarily a bad thing, and the company narrowed its loss substantially in the first quarter. But investors do have to balance the excitement of a story stock with the likelihood of it eventually earning money.

Still, analysts view that if the stock can reach $52 (Dh191.01) on a relatively early stage flight, there could be potentially significant upside if the company's plans really do take off, making it one of the top space stocks in the market.

• ARK Space Exploration and Innovation ETF

This ARK ETF aims for exposure to orbital and sub-orbital aerospace companies, those that provide enabling technologies, as well as business benefiting from aerospace activities – such as agriculture, internet access, global positioning systems, construction and imaging.

The fund “offers a tool for diversification due to little overlap with traditional indices”, according to its fact sheet.

Its top holdings include some major companies, but others are further afield. For example, Japanese manufacturer Komatsu Ltd., which makes construction, mining and forestry equipment, as well as e-commerce giant Amazon.com Inc.

How can one go about investing in exchange-traded fund (ETF)?
Image Credit: Shutterstock

• SPDR S&P Kensho Final Frontiers ETF (ROKT)

This highly popular ETF offers exposure to equities involved with space exploration as well as the deep sea.

Approximately 65 per cent of the fund’s portfolio is allocated to companies involved solely in space exploration, while 5 per cent offers exposure to companies involved solely in deep sea exploration.

The remaining 30 per cent of the portfolio is allocated to companies involved with both industries, thereby balancing out its exposure and risks – making it one of the more ideal investment avenues.

Is there a prominent space index to track space-related investment growth?

A popular benchmark known as S-Network Space Index, and for a company to be a part of it a company must have a market cap of at least $100 million (Dh367 million) and its shares must trade at least $1 million (Dh3.67 million) per day.

Pure play space companies, which derive over 50 per cent of their revenues from space-related businesses of services, form at least 80 per cent of the index. This means there is a limit to how much of the index can track the larger, more diversified companies.

By investing in a fund that tracks the index, you're getting exposure to all these companies doing different things and companies doing top-secret military and government programmes as well, with some of the hidden subsidiaries within some of these companies.

But because they’re not pure-play, we didn’t want these large conglomerates to drive all the performance of the fund, so that’s why we have two tranches of companies.

How to best design your investment portfolio for maximum gains
How to best design your investment portfolio for maximum gains Image Credit: iStock image

Isn’t investing in space considered a high-risk investment?

While experts still see space as a high-risk investment, multiple market analysts reiterate that if you're going to take the risk, ETFs are the way to go. The reason being private space travel, exploration and operation is one of the smallest and youngest industries we have left to invest in.

However, investor interest is strong enough that an industry of space ETFs has popped up over the past couple of years. So, it's definitely a growth market, even if it’s still risky to invest in currently.

Given its growth potential diverting a small portion of your investments to it would be ideal, according to veteran investors.

Morgan Stanley had also noted that near term, space as an investment theme is also likely to impact a number of industries beyond aerospace and defence sectors, such as IT hardware and telecom sectors.

Yet, the most significant short- and medium-term opportunities may come from satellite broadband internet access, the prominent investment lender added.

With the space sector likely to continue to beam up more investor interest it would be contradictory if the investments do not face more competition in the coming years.