Is Ark's Space Exploration ETF (ARKX) a Buy?

Cathie Woods and her team have launched and managed some of the hottest ETFs in the industry over the past several years.

Now they're debuting the latest offering from Ark Investments: The ARK Space Exploration and Innovation ETF (BATS: ARKX) launched on March 30, 2021.

After the wild successes of Ark's Genomic Revolution ETF (BATS: ARKG), up 164% in the last year, and Innovation ETF (NYSEArca: ARKK), up 154% in the last year, investors are already lining up ready to buy into this one.

If you're wondering if ARKX deserves a sport in your portfolio, then you're in the right place.

Here's what the fund is all about and whether it's worthy of your money right now...

What Is the ARK Space Exploration and Innovation Fund?

As the name implies, this fund invests in companies that will benefit from the space exploration trend.

Think companies that make orbital spacecraft, including things like satellites and launch vehicles. The fund can also invest in aerospace companies that don't make spacecraft. The idea here is that much of the technology for suborbital aerospace crafts and systems will eventually be a part of orbital vessels.

ARK Space Exploration and Innovation can also invest in the companies that make space travel possible. This includes businesses like artificial intelligence, robotics, 3D printing, materials, and energy storage.

Finally, the ETF will invest in companies that benefit from space travel and innovation. Given that satellites are part of the mix, that's pretty much every business on the planet, but ARK's literature specifically mentions agriculture, Internet access, global positioning system (GPS), construction, imaging, drones, air taxis, and electric aviation vehicles.

Money has been flowing into the space industry as investors and venture capital race to get in on the next big thing. Although the funding pace slowed a little in April and May of last year, once it was clear that the Fed had prevented the end of the world, money began once again pouring into space companies.

Carissa Christensen, chief executive of Bryce Space and Technology, a consulting firm to the space industry, said that although she hadn't finished crunching the numbers, it looked to her like space funding in 2020 would hit or break the 2019 record of $5.7 billion.

Analysts at Morgan Stanley think that the space industry could be a $1 trillion industry by 2040, up from about $350 billion today.

According to the analysts, most of that business will come from satellite broadband Internet companies, at least in the early stages of the growth curve. The demand for data around the world is growing at a rapid rate, and that is going to increase the need for broadband satellites dramatically. The most growth could come from providing broadband service to underserved regions of the world.

There will also be satellite demand to meet the need of driverless vehicles, the Intent of Things, virtual reality, and a host of other high-tech industries that require high-speed Internet access.

In addition to broadband access, the space industry could eventually include things like space tourism, and maybe even someday, Elon Musk's mission to Mars will become a reality.

This sure sounds like an exciting sector, and one with huge potential, but is it better to invest in a space company or a fund like ARKX?

Is the ARKX ETF a Buy?

If you believe that the space industry will attain the rapid growth rates the analysts are projecting, owning a little bit of this ETF is probably a good idea.

It is impossible to deny the potential of the space economy. The satellite need will be real, and future uses of space technology and travel for commercial and military uses are exciting to contemplate.

With very few actual space companies to buy right now, the new fund's initial positions are navigation companies like Trimble Inc. (NASDAQ: TRMB) and aerospace companies like Kratos Defense and Security Solutions Inc. (NASDAQ: KTOS) and L3 Harris Technologies Inc. (NYSE: LHX).

Iridium Communications Inc. (NASDAQ: IRDM) was the only satellite company that made the top 10 holdings of Space Exploration and Innovation.

For reasons we have been unable to decipher, Netflix Inc. (NASDAQ: NFLX) made the initial portfolio.


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Virgin Galactic Holdings Inc. (NASDAQ: SPCE) is in the portfolio, but it is just 1.94% of the initial 39-stock portfolio.

There are not that many pure-play publicly traded space companies right now.

The explosion in special purpose acquisition companies (SPACs) could change that over the next few years. There are already seven SPACs that have announced that they are buying space-related companies.

We would expect to see ARK Exploration and Space be a buyer of many of these businesses as the ETF gets larger.

This is going to be a volatile ETF for a long time. We wouldn't go crazy buying a bunch of the fund no matter how exciting the industry appears. Many of the portfolio companies are small-cap, high-multiple stocks that will be especially vulnerable in market sell-offs.

The ARK Space Exploration and Innovation ETF will also go right next to the Ark Innovation ETF on our list of things to buy in an exceptionally bad market.

Momentum and sentiment traders might want to add this ETF to their inventory as we expect that trading in ARK Space Exploration and Innovation will be very news- and sentiment-driven.

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