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The ARK Space Exploration & Innovation ETF launched on March 30, 2021 – will it live up to the ARK standard? Here’s what you need to know before buying ARKX.
The Investors Case for Space
There are very few pure-play space companies because of the costs and difficulties in turning a profit.
However, many consider space the next frontier, including the U.S. government, which added the United States Space Force to its uniformed services in 2019.
Morgan Stanley estimates “the global space industry could generate revenue of more than $1 trillion in 2040, up from $350 billion currently.”
Here are a few reasons companies and governments are interested in the space economy:
#1. Satellite Internet
Companies like SpaceX and Iridium (IRDM) are focused on improving connectivity through low-Earth orbit satellites, wireless broadband, and optical technologies. This is probably the most profitable space-related sector in the short term.
- ARKX Satellite Internet companies: Iridium, Kratos, & L3Harris
#2. Earth Observation
Earth observation companies develop GPS, imaging, tracking, and analytics technology to monitor the weather, climate, maritime data, and more.
- ARKX Earth Observation companies: Garmin, Teledyne, Dassault Systemes, Raven Industries, & John Deere
#3. Space Infrastructure
Space infrastructure companies build the infrastructure for life in space by designing and developing spacecraft, hardware, and engines.
- ARKX Space Infrastructure companies: The 3D Printing ETF, Spirit Aerosystems, Komatsu, & Heico
#4. Deep Space Exploration
Deep space exploration companies develop missions to transport people and cargo beyond Earth’s atmosphere to places like the moon and Mars.
- ARKX Deep Space Exploration companies: Boeing, Airbus, Lockheed Martin, AeroVironment, & Virgin Galactic
#5. Space Tourism
Space tourism companies provide access to space for private citizens and space adventure programs.
Virgin Galactic has more than 600 private individuals signed up for its first commercial flight — which will cost north of $250,000 per ticket.
- ARKX Space Tourism companies: Virgin Galactic
While these are all exciting trends, Morgan Stanley classifies satellite internet access as the most significant short- and medium-term opportunity for space-related companies.
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Why Invest in ARKX?
According to ARK, this fund aims for thematic exposure to “Space Exploration”, which includes orbital and sub-orbital aerospace, enabling technologies, and beneficiaries of aerospace activities, such as agriculture, Internet access, global positioning systems (GPS), construction, and imaging.
Here is how ARK defines these categories and the fund’s current allocation to them:
- Orbital Aerospace Companies launch, make, service, or operate platforms in the “orbital space”, including satellites and launch vehicles (28.6%).
- Suborbital Aerospace Companies launch, make, service, or operate platforms in the “suborbital space” but do not reach a velocity needed to remain in orbit around a planet (5.6%).
- Enabling Technologies Companies to develop tech for aerospace operations including artificial intelligence, robotics, 3D printing, materials and energy storage (24.9%)
- Aerospace Beneficiary Companies stand to benefit from aerospace activities including agriculture, internet access, global positioning system (GPS), construction, imaging, drones, air taxis and electronic aviation vehicles (39.7%).
See: Best ARK ETFs
Making Sense of ARKX
ARKX is not a pure-play space investment today; most of these names have space-related divisions representing a small portion of their overall operations.
ARK appears to be buying companies that can become “space companies” as their technology improves and costs come down.
ARK has a reputation of making risky investments, but many of the constituents in ARKX are well-known quality companies:
- Taiwan Semiconductor
These companies might be serving as stable investments until more pure-play space opportunities hit the market.
Cathie Wood underscores the value of a long-term mindset regarding innovation and disruptive technology – but the inevitably of the space economy doesn’t mean that ARKX is a buy.
ARK Space ETF Details
- Ticker: ARKX
- Type: Active Equity ETF
- Inception Date: 3/30/2021
- Expense Ratio: 0.75%
- Fund AUM: N/A
- Typical Number of Holdings: 40-55
- Weighted Avg. Market Cap: $176 Billion
- Median Market Cap: $30 Billion
- Active Share (S&P500): 94%
ARK Space ETF Top Holdings
#1. Trimble Inc. (TRMB) 8.3%
Founded in 1978, Trimble uses technologies in positioning, modeling, connectivity, and data analytics to deliver products and services that connect the physical and digital world. Trimble mostly works with agriculture, construction, geospatial, and transportation companies.
Trimble’s primary focus is commercial and industrial building, but its geospatial division must have caught ARK’s attention – approximately 20% of revenues come from surveying and GPS products.
#2. ARK’s 3D Printing ETF (PRNT) 6.1%
The 3D Printing ETF tracks an index of companies involved in 3D printing hardware, computer-aided design (“CAD”) and 3D printing simulation software, 3D printing centers, scanning and measurement, and 3D printing materials.
ARK received criticism for repackaging one of its own funds in ARKX, but the company believes 3D printing’s role in manufacturing parts is crucial to space exploration, and PRNT is (objectively) the best exposure option.
#3. Kratos Defense & Security (KTOS) 5.6%
Kratos develops and fields systems, platforms, and products for national security and communication needs, such as unmanned systems, satellite communications, C5ISR, warfighter training, and combat systems.
Kratos contracts with the U.S. military, government, and commercial sector – it was included in ARKX for its satellite, UAV, antenna, and network expertise.
#4. L3Harris Technologies (LHX) 5.0%
L3Harris is a global aerospace and defense technology company that specializes in surveillance solutions, microwave weaponry, and electronic warfare.
The company is organized under four business segments: Integrated Mission Systems, Space & Airborne Systems, Communication Systems, and Aviation Systems.
Its space segment focuses on payloads, sensors and full-mission solutions for intelligence, surveillance and reconnaissance (ISR), missile defense, positioning, navigation and timing (PNT), weather, and ground-based space surveillance networks.
#5. JD.com Inc (J.D.) 4.8%
JD.com is China’s largest online retailer and biggest overall retailer. Its platform consists of third-party merchants selling electronics products, home appliances, and other general merchandise categories.
This is an interesting inclusion in a space exploration ETF, but the fund’s description includes companies whose operations stand to benefit from aerospace activities, like internet access and GPS.
While that criteria would include most businesses, JD.com’s supply chain solutions will likely improve with enhanced internet capabilities.
Note that this is an active fund — companies and allocations are subject to change daily.
ARK Space ETF Unexpected Holdings
ARKX also owns John Deere (D.E.), the heavy equipment maker that manufactures tractors. Wait, what?
While nobody expects to see a tractor in space, Deere actually uses space technology like GPS, space-based earth imaging, and drone applications to improve farming capabilities.
Another surprise inclusion is Workhorse (WKHS), which is a tech company that provides drone-integrated electric vehicles to the last-mile delivery sector.
Remember, products or services that occur “beyond the surface of the Earth”, like drones, satisfy ARKX’s inclusion criteria.
Some expected a larger allocation to Virgin Galactic (SPCE) — the most popular publicly traded space tourism company makes up just 1.95% of ARKX.
See: Apple Stock Analysis
ARKX Adding SpaceX and Blue Origin
There are several private space exploration companies that are looking to go public over the next few years, most notably Elon Musk’s SpaceX and Jeff Bezos’s Blue Origin.
Without a doubt, these two companies will be major additions to ARKX once they IPO. They are each driving down the cost of spaceflight via reusable launch vehicles.
Investing in ARKX might be the retail investor’s chance to get exposure to SpaceX, Starlink, or Blue Origin at their IPO price.
See: Tesla Stock Forecast
ARKX Space ETF FAQs:
Which ARK ETF is best?
ARK’s flagship ETF is the “ARK Disruptive Innovation (ARKK) ETF”, which invests in companies focused on artificial intelligence, autonomous vehicles, fintech, DNA sequencing, robotics, and 3D printing.
ARK Invest has six actively managed ETFs (ARKK, ARKQ, ARKW, ARKG, ARKF, and ARKX) and two indexed ETFs (PRNT, IZRL). ARKK has $22+ billion in AUM and is the largest active ETF on the market.
Is there a space ETF?
There are a handful of space-related ETFs, most notably SPDR S&P Kensho Final Frontiers ETF (ROKT), Procure Space ETF (UFO), and the ARK Space Exploration & Innovation ETF (ARKX). There are only a handful of pure-play space companies, and many of them are still private.
What stocks are in ARKX?
These are the top 10 stocks in ARKX by allocation:
- Trimble Inc (8.47%)
- The 3D Printing ETF (6.10%)
- Kratos Defense & Security (5.62)
- L3Harris Technologies Inc (4.97%)
- JD.com Inc (4.91%)
- Komatsu Ltd (4.56%)
- Lockheed Martin Corp (4.47%)
- Iridium Communications (4.23%)
- Thales S.A. (3.48%)
- Boeing Co (3.48%)
Other notable inclusions are Nvidia (NVDA), Amazon.com (AMZN), Alphabet (GOOG), Virgin Galactic (SPCE), Netflix (NFLX), Alibaba (BABA), John Deere (D.E.), Taiwan Semiconductor (TSM), and Tencent (TCEHY).
Who is Cathie Wood?
Cathie Wood is the founder, CEO, and CIO of ARK, which is an asset management firm that invests in technological innovations centered around DNA sequencing, robotics, artificial intelligence, energy storage, and blockchain technology.
Cathie Wood’s suite of ARK ETFs has drastically outperformed the market in recent years.
Bottom Line: ARK Space Exploration & Innovation ETF (ARKX)
ARK has built a reputation on identifying trends before they happen — if anyone is going to have a space exploration ETF, it’s going to be ARK.
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Sean Graytok does not own shares of ARKX.