ARK Invest’s Space ETF is not just space stocks, and that could be a good thing

Cathie Wood’s new ETF has seen impressive inflows but has also be met with some doubts. After all, why would a space ETF be holding tractor, video streaming and e-commerce company stocks?

Key takeaways on the new space ETF

  • The new ARK Space Exploration & Innovation ETF aims to target companies involved in and benefitting from the development of the space industry.
  • The ETF saw important inflows, with $300 million in its first day of trading, making it the 8th best trading debut in markets.
  • Some investors showed some perplexity to see some stocks that seemed irrelevant to the space industry, such as Lockheed Martin Corp. or Deere& Co.
  • ARK explains that the aim was to embrace the full picture of the space sector, not only rockets and lasers, but also the different industry that will thrive thanks to it.

 

ARK Space Exploration & Innovation ETF’s description

Following the official description of the ARK Invest website, the ARK Space Exploration & Innovation ETF has an investment based, like other ARK funds, on the growth of capital, betting on the next ground-breaking technologies. The fund pledged to invest at least 80% of its capital in domestic and foreign securities that fit in the following categories:

  • Orbital Aerospace companies – companies that launch, make, service or operate platforms in the orbital space.
  • Suborbital Aerospace Companies – any company that performs the same services as orbital aerospace companies, but that do not reach the velocity to maintain their platforms in orbit around the planet.
  • Enabling Technologies Companies – any company that develops technologies which can be used in the context of space exploration, such as AI, robotics, 3-D printing, energy storage, etc.
  • Lastly, Aerospace beneficiary companies – companies that will benefit from the previously mentioned space activities, such agriculture, internet access, drones, electric aviation.

Here is the list of its latest holdings:

 

ARKX holdings as of April 8, 2021 (Source: ARK Invest)

ARKX holdings as of April 8, 2021 (Source: ARK Invest)

Record inflows for a new space exploration and innovation fund

The new ARK ETF is already on track to be one of the most successful funds launches in history, with investors pouring $536.2 million in the ETF in the first five days of trading, $300 million of which happened in the very first day of trading. For comparison, the industry can usually expect to reach $100 million of assets under management within 3 years on average.

At this pace, it might not be long until the ETF reaches the billion mark. Very few instruments saw such lightening success. One of them was the SPDR Gold Trust, which surpassed $1 billion in only 3 days of trading in 2004. Even their most popular fund, the Ark Innovation ETF, which was launched in 2014, took more than 3 years to reach the $1 billion cap. ARKX now has the title of the eighth-best debut of first day trading according to Bloomberg.

Has Cathie Wood come to turn into king Midas, transforming everything she touches into gold? That is what some investors think. But the new space ETF also found its fair share of critics.

 

Criticism about the composition of ARKX

Regarding the composition of the new Space Exploration ETF, many investors seemed doubtful. Nearly half of the fund is composed of not tech, but manufacturers, such as Lockheed Martin Corp, Boeing, and Deere & Co. Many of these stocks are equities which Cathie has not yet been involved with.

The critics also went off on social media, where we could see humorous pictures of Deere tractors rolling on mars and other pictures laughing at the – apparently non-existent – tie between such stocks and space projects.

 

What about a Tractor Supply store on the moon? (Source: Reddit)

What about a Tractor Supply store on the moon? (Source: Reddit)

In the same manner, many investors did not understand why some pure-play space stocks did not make it into the club, such as Maxar Technologies, Rocket Lab USA or Astra Space Inc.

Fees were also criticized. Although a 0.75% expense ratio is not too high for an active ETF, we can question the worthiness of paying such a fee in such a targeted fund: after all, there are not so many space stocks on the market yet. For a space pureplay investors, it is not worth paying to get the best stocks in a sector where the number of stocks is limited anyway: you are paying to get most of the space stocks, which is not much added value in itself.

 

Space exploration is not only about rockets and lasers

Previous bets on growth stocks proved a little fragile when their funds went down at least 16% from their highs earlier this year, as many investors turned to unloved value stocks. From a diversification standpoint, creating a fund not “only pure-play space stuff” which tends to be very growth-centric makes sense.

But the reason goes way beyond that. Ren Leggi, client portfolio manager at ARK, acknowledged that some of the fund’s positions were confusing to say the least. However, what ARK considers space exploration is really everything happening above the ground.

This means that some stocks, such as Netflix, could benefit from some space advancements, such as the rollout of space satellites which would enable further adoption of broadband internet for streaming.

As for the left-aside space stocks, the company argues that many of them were simply overvalued, not to mention the ones involved in SPACs, which do sometimes tend to have very random outcomes. Their criteria are simple: if the stock cannot sustain a 15% annualized return rate, they discard it.

In defence of the fund, an investor who is bullish on only purely space-related companies might prefer buying single stocks, the ARKX is trying to embrace the bigger picture.

 

Price of the Space & exploration ETF

ARKX fund share price as of April 8 (source: TradingView)

ARKX fund share price as of April 8 (source: TradingView)

The ETF began trading only a couple days ago and is currently price at around $21. With impressive inflows coming, adding to the fact that the ARK Innovation fund’s share price multiplied by 6X in 6 years, many investors see this new space fund as a great opportunity to board the next potential ARK success boat.

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