Space: The Final (Financial) Frontier

You think space is the final financial frontier.

You'd like to invest in companies that go there - or companies that build things that go there.

SpaceX comes to mind: But SpaceX is privately held. It does not trade on any exchange. You can buy private shares, if you have a spare billion or so to invest. But, for most of us, that's not really practical.

Consider investing in some of the defense and aerospace giants who have significant space operations: e.g. Boeing (BA), United Technologies (UTX)] [*1]. or, ETFs that emphasize them: iShares U.S. Aerospace & Defense ETF (ITA), PowerShares Aerospace & Defense Portfolio (PPA), SPDR S&P Aerospace & Defense ETF (XAR)] [*2].

These large companies and funds have the advantage of longevity and size. Most of the giants are heavily dependent on government contracts (always a risky proposition). Their dominant market positions and experience create a risk-barrier that insulates them from extreme devaluations (e.g. Boeing has not delivered, nor has any of their customers flown, their most popular model, 737 Max, for the last six months. BA stock has maintained its value over that period.)

If the aerospace giants don't offer you a sufficiently-pure "space play," there are plenty of companies that single-mindedly pursue narrower space niches: e.g. Harris Corp. (HRS), Aerovironment (AVAV), Maxar (MAXR), EchoStar (SATS), Intelsat (I), Loral (LORL). [*3]

With the exception of Harris Corp, most of these specialty companies are relatively small ($1-$2B Market Capitalization), and many trade relatively thinly (possibly, implying less investment liquidity than the giants). Further, their greatest virtue (specificity) is also their greatest vulnerability. Without a diverse product or service line, the companies are vulnerable to changes in market requirements; their size amplifies that risk exposure.

Managing a sector-segment portfolio can be a harrowing experience. With 50-60 highly specialized players in the arena, balancing product-line risks becomes problematic. Independent Advisors usually resolve this issue (as much as possible) by including generous fund or ETF positions in the portfolio. This allows diversification along sector-segment productlines without constant portfolio monitoring and adjustment (In theory, the fund manager does the monitoring and adjustment or the fund rebalances periodically based on an independent index). Our own research identified two nearly pure space-play ETFs, and another that emphasizes space-relevant technology and products:

  • Procure Space ETF (UFO); The purest of the space-play ETFs: The fund invests, under normal circumstances, at least 80% of its net assets in companies that receive at least 50% of their revenues or profits from space-related businesses.

  • SPDR® Kensho Final Frontiers ETF (ROKT); Somewhat less pure, but still:.. The fund generally invests substantially all, but at least 80%, of its total assets in the securities of companies whose products and services are driving innovation behind the exploration of deep space and deep sea.

  • PureFunds Drone Economy Strategy ETF (IFLY); not really a pure-space play, but the technologies represented in the portfolio are adaptable to unmanned and automated flight systems. The fund normally invests at least 80% of its total assets, exclusive of collateral held from securities lending, in securities, ADRs, or GDRs of Drone Economy Companies. The portfolio includes equity securities of companies across the globe and across a wide variety of industries that are actively involved in the development, research, or utilization of drones.

Exercise caution: Needless to say, but we'll say it anyway, none of the funds is "diversified" as that term is commonly construed. All three of the funds include global companies. All three funds are small (<= $35 Million) and quite new (The youngest is about 6 months old, the oldest is about 3 years old).

[*1] Also; General Dynamics Corp. (GD) and Lockheed Martin Corp. (LMT) Honeywell International (HON), Northrup Grumman (NOC)

[*2] Also; iShares Edge MSCI Multifactor Industrials ETF (INDF), iShares Global Industrials ETF (EXI), PowerShares S&P 500 Quality Portfolio (SPHQ); Only one of these funds(EXI) has significant international exposures to companies like Siemens and Airbus.

[*3] Identify other specialized "space companies" by reviewing the holdings of the three "space" ETFs we mention above. One of our formerly best examples, Orbital ATK (OA), was acquired by Northrup Grumman and no longer trades. Northrup renamed Orbital ATK as Northrop Grumman Innovation Systems.

The information in this note and any accompanying report is intended for general use. Your situation may differ from the assumptions used in our analysis. Please contact us or your own securities, management, or tax advisor for suggestions that acknowledge your specific circumstances.

This is not an offer or suggestion to buy or sell any security. This is not an endorsement of security mentioned. Other securities may be equally or more suitable for the purposes outline in this message.

Steven Roy Management - Cambyses Capital is affiliated (by common ownership and directors) with Cambyses Financial Advisors, LLC; (CFA) a Registered Investment Advisor CRD #: 230786. Steven Roy is a managing member and Investment Advisor Representative of CFA; CRD#6499051

Photo: Source: NASA, Simulated view of Parker Solar Probe on station above the sun. The data stream from the Parker Probe is monitored and managed, in part, by Advanced Heliophysics - a Steven Roy Management Not-For-Profit client.


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