Analysis-Space ETFs booming in anticipation of SpaceX IPO

By Suzanne McGee

PROVIDENCE, Rhode Island, May 22 (Reuters) – Space-themed exchange-traded funds are blasting off, with asset managers rushing to issue new products ahead of the much-anticipated IPO by industry giant SpaceX and investors jumping aboard the space bandwagon.

Space-related ETFs have attracted $1.3 billion in new cash in the last month alone, pushing total assets under management in the embryonic segment to $3.3 billion, according to Morningstar Direct. The popularity has been driven by Elon Musk’s SpaceX as well as a realization among investors that this may mark only the beginning of meaningful growth in the space economy, as envisaged by Musk and his plans to colonize Mars. 

“We tend to see this happen whenever something new and shiny appears on the scene,” said Bryan Armour, an ETF analyst at Morningstar, referring to the proliferation of new products. 

Until this year, investors who wanted to put their money into an ETF dedicated to the space economy rather than the much broader aerospace and defense sector had only a single option: the Procure Space ETF, launched in 2019.

But in the last three months, since SpaceX began signaling to the market that it would indeed forge ahead with an IPO in 2026, UFO has been joined by six more funds, each with its own twist on the space theme in its ticker. One of them, the $1.27 billion Tema Space Innovators ETF, has accumulated more in assets in the seven weeks since its launch than the $972 million UFO has in the seven years since its debut, according to data from Morningstar Direct.

NEW LAUNCHES ACCELERATE

The rush is far from over. Another two ETFs targeting the same theme are likely to lift off within weeks of the expected mid-June SpaceX debut, and some issuers are planning leveraged and enhanced income ETFs tied specifically to SpaceX, according to recent filings with the Securities and Exchange Commission.

The most recent space ETFs to launch are the VanEck Space ETF and the Corgi Space and Satellite Communications ETF, which debuted only a day apart at the beginning of May and together have already pulled in $13.6 million in assets. 

“We’d been monitoring this for a while but it is only in the last few months that we have felt there was an inflection point; that there would be enough diverse but pure-play companies for this kind of thematic ETF to work,” said Nick Frasse, product manager at VanEck, who said SpaceX would bring other companies along with it into the space economy.

“While some investors (in these funds) may just want to be sure of getting into SpaceX when it goes public, we’re focused on what it means for the sector,” said Frasse. “I think everyone is seeing the writing on the wall, that this is a big growth story.”

BEYOND SPACEX HYPE

SpaceX may be soaking up a lot of the oxygen in the room, but the managers of these new ETFs are quick to point out that even before that much-ballyhooed IPO, stocks like Rocket Lab and AST SpaceMobile were on a tear, gaining 393% and 258%, respectively, over the last 12 months.

“In the last year or two, we’ve finally started to see that people are accepting that space may not be too far out into the future to be investable,” said Andrew Chanin, CEO of Procure. Two-thirds of the inflows into its UFO ETF have come in the last 12 months, and 20% in the last month alone, according to Morningstar Direct.

Chanin notes that UFO was labeled the worst ETF launch of the year by Morningstar in 2019. Morningstar data now shows the ETF has posted a 49% year-to-date return and a one-year gain of 133.6%. 

“We’ve been saying since the start that the space economy is misunderstood; it’s really a tollbooth on the AI superhighway” and will benefit as companies find satellites and even, potentially, orbiting data centers, vital in the next stage of the communications revolution, he said.

OVERLAP CONCERNS EMERGE

But the eye-popping gains of recent months should not distract investors from the fact that the “space economy” is still a tiny niche in the much broader technology universe, cautions Todd Sohn, ETF strategist at Strategas. He warns that the “chase after SpaceX and space and the next big thing” may be problematic.

“There are still so few companies involved that the overlap between the holdings of these funds is going to be quite significant,” he cautioned.

A Reuters analysis of the largest holdings of the seven existing pure-play space ETFs shows that all of them include the same four stocks, including Rocket Lab, in their top 10 holdings, and that all of them have an overlap of 50% or more in the list of their holdings.

“I start to worry when everybody is thinking the same way; it just makes it hard for any single manager or fund to differentiate themselves except through marketing,” Sohn said. 

(Reporting by Suzanne McGee in Providence, Rhode Island; Editing by Megan Davies and Matthew Lewis)