3 Space ETFs to Pick Up Before SpaceX IPO

Key Points

• The anticipation of SpaceX's IPO—potentially the largest in history—has drawn investor interest toward space stocks more broadly.
• Three ETFs focused on the space industry in a variety of ways are UFO, ROKT, and ARKX.
• While ROKT includes some stocks outside of the space industry, the other funds are pure plays on baskets of dozens of space and related stocks.

As SpaceX moves toward what may be the largest IPO in history, investors have turned their attention to the skies. The enthusiasm surrounding Elon Musk's latest company to enter the public trading sphere could very well boost share prices industry-wide, even for potential rivals.

Investors unsure of where to focus their exposure in the space industry can simplify the process with a growing number of space-themed exchange-traded funds (ETFs). These vehicles offer broad access to space stocks and often utilize unique niche strategies for targeted exposure to one corner of the industry or another.

Wide Access to Industrials and Telecomm Companies in the Space Industry Via UFO

The Procure Space ETF NASDAQ: UFO may be a strong well-rounded option for investors looking for broad exposure to the space industry. The fund invests its half a billion dollars in assets in companies providing ground equipment for satellite systems, rocket and satellite operations and manufacturing, telecommunications and broadcasting, imagery, and intelligence services, among others.

UFO gives a balanced access to two of the key sectors in the space industry—industrials and communications. Across about 50 holdings, no single stock stands out by a wide margin, with the heaviest allocation going to satellite imagery firm Planet Labs PBC NYSE: PL at roughly 6.3% of the portfolio.

Among the space ETFs on our list, UFO dominates in trading volume, making it one of the more liquid ETFs in the space industry. In exchange, it has a somewhat higher expense ratio than some of its alternatives, and the annual fee is 0.75%.

That may be especially worthwhile, though, during bull runs: the fund has returned about 40% year-to-date (YTD).

"Final Frontiers" of Space and the Deep Sea With ROKT

A less-expensive and narrower fund than UFO, the SPDR Kensho Final Frontiers ETF NYSEARCA: ROKT targets about three dozen companies operating at the "final frontiers" of space and the deep sea. While ROKT is not, therefore, a pure-play space ETF, it leans heavily on space companies. Its largest holding at 7.4%, coincidentally, is also PL.

Like UFO, ROKT is a passively managed fund that tracks an index of stocks. Uniquely, though, the underlying index in the case of ROKT uses artificial intelligence and quantitative weighting to balance its portfolio. Just over half of invested assets are allocated to aerospace and defense companies, although the fund also holds research firms, oil and gas equipment names, electronic component and equipment firms, and more.

It has been a good start to the year for ROKT as well, although its performance comes up slightly shy of UFO's. The fund has returned about 35% YTD. The expense ratio of 0.45% helps to set this fund apart from some of its costlier competitors as well. However, ROKT has both the lowest assets under management and the smallest average trading volume of the space funds we're looking at, so it may be less suitable for active investors or those otherwise concerned with liquidity.

An Actively Managed Alternative With a Highly Focused Portfolio

The ARK Space Exploration & Innovation ETF BATS: ARKX stands out as the only actively managed space ETF on this list. It has a global purview, which allows it a broader range of companies for potential inclusion than either of the funds above (UFO aims for developed markets and ROKT just includes U.S.-listed names).

ARKX has over $800 million in managed assets and a solid one-month average trading volume close to 700,000, which may appeal to investors finding ROKT too small or lightly traded. In exchange for the active management, however, the fund has an expense ratio of 0.75%, in line with UFO above.

This fund also has the narrowest portfolio of the three, with only 33 holdings, and it leans fairly heavily on a handful of defense companies, including L3Harris Technologies Inc. NYSE: LHX and Kratos Defense & Security Solutions Inc. NASDAQ: KTOS.

By selecting a smaller portfolio from a deeper pool of potential holdings, ARKX may make the case that it is selecting the highest-quality names possible. Its breadth of companies includes those directly involved in the space industry—autonomous mobility and intelligent device firms, for instance, and reusable rockets—and those with applications both inside and outside of the industry. This latter category also includes 3D printing companies, adaptive robotics stocks, and firms contributing to advances in neural networks, for instance.

ARKX has the lowest return YTD, having risen by only 15% during that period. However, in the last year, it has climbed by 90%, far ahead of the broader market, although still not as impressive as either of the other funds above over that longer timeframe.