Half a century after the moon landing, investors have access to the first ETF to track companies involved in space-related businesses. The Procure Space ETF (UFO) targets companies that generate a significant portion of their revenue from space-based functions, or as the prospectus notes, “any kind of function carried out by hardware, software, or humans physically located in space.”
UFO lists on the NYSE Arca and comes with an expense ratio of 0.75%.
The fund’s underlying index, the S-Network Space Index, is the result of a collaboration between S-Network and Space Investment Services, and can include companies from across the size spectrum involved in everything from satellite-based communications to space technology and hardware.
According to the prospectus, the companies in the index must make products that go into space, provide systems that are used in space or—if the company’s products and services are used strictly on earth—space must play an essential role in the company’s business.
Companies included in the index must meet certain criteria regarding size, liquidity and business activities. To be eligible based on its business activities, a company must have a history of manufacturing satellites or launch vehicles or operating a launch vehicle. Or it could be a company that operates or uses satellites, manufactures parts for space vehicles and spacecraft, or manufactures products that need satellite systems for their operation, the prospectus says.
The index is two-tiered, with the main tier, classified as nondiversified, representing 80% of the index’s total weight. These are the companies that generate between half and all of their revenues from space-related business. The second tier, classified as diversified, is only 20% of the total index, but it includes stocks that generate less than half their revenue from space-related business lines.
Within the different tranches of the index, companies are weighted using a modified market-cap system that takes into account the company’s available float and the portion of its revenues derived from space-related activities, while applying caps on individual stocks, the document notes.
Andrew Chanin is the co-founder and CEO of Procure ETFs; UFO is the issuer’s first fund. Chanin is best known for being one of the driving forces behind what is now the $1.6 billion ETFMG Prime Cyber Security ETF (HACK). He says that UFO was never intended to resemble existing aerospace and defense ETFs like the $5 billion iShares U.S. Aerospace & Defense ETF (ITA).
“The last thing we wanted to do was give people an aerospace and defense ETF and just slap a different name on it,” Chanin said. “If we did that, we wouldn’t be creating anything or providing value to potential investors.”
According to S-Network’s website, the top components in UFO’s 30-stock index included Iridium Communications, Inmarsat, Viasat, Trimble Navigation and Sirius XM, with weightings between 4.9% and 5.4% as of mid-March. The largest sectors were communication services at 59.1%, industrials at 20.8% and information technology at 14.65%. The U.S. had a weighting of 69.2%, followed by France at 12.4% and the U.K. at 5%.
Chanin says there are three developments currently setting up the space industry for new possibilities and opportunities; namely, decreasing costs, and decreasing the size of technology such as satellites and greater collaboration.
He points out that it now costs less to launch spacecraft and satellites into space, partly because they are smaller in size, making it easier for companies to test new ideas, strategy and R&D. Further, whereas once space exploration and technology were primarily controlled by governments, the involvement of private companies is now much greater.
“There are a lot of technological aspects at the moment that are setting the space industry up for new possibilities,” he said.
Contact Heather Bell at [email protected]