Category: ARKX

Space investing is in its infancy, but analysts and investors believe the final frontier is ripe with opportunity and disruptive potential. Stock picking to that effect is, however, tricky business, highlighting the utility of exchange traded funds such as the ARK Space Exploration & Innovation ETF (ARKX).

ARKX is in the midst of a solid 2023 rebound, pointing higher by nearly 9% on a year-to-date basis. For investors that take a long-term view of space – perhaps the appropriate course of action – more significant gains could be realized down the road.

Consider the following: In a note to clients out earlier this week, Citigroup analyst Jason Gursky compared the current state of the space investing segment to a “gold rush” scenario.

“In a way, space feels like the opportunity presented by the California gold rush – lots of risk, but plenty of potential upside for those that find the special nugget,” he wrote.

He initiated coverage of several space-related equities, extolling a preference for Planet Labs (PL). That stock currently isn’t a member of the ARKX portfolio, but it’s worth remembering the ETF is actively managed, so ARK Investment Management can rapidly seize upon emerging space investment opportunities. The analyst also started coverage of ARKX member firm Rocket Lab (NASDAQ: RKLB) with a “neutral” grade.

Beyond specific equity ideas, Citi is constructive on the future growth potential of the space industry and that extends beyond space tourism.

“Citigroup is constructive on the outlook for space-based activity. It expects space to become a trillion-dollar industry by 2040, growing at a 5% compound annual growth rate (CAGR) over the period, thanks to government space budgets, satellite industry growth, and new applications and sub-specialities,” reported Michelle Fox for CNBC.

Due to expected government investments in space, large-cap, blue-chip aerospace, and defense stocks are also appealing avenues for space access. Citi has a “buy” rating on Lockheed Martin (NYSE: LMT) and “neutral” views on Northrop Grumman (NYSE: NOC), and Raytheon Technologies (NYSE: RTX). Lockheed Martin is a member of the ARKX roster.

“After all, a rising tide is likely to raise all boats and these companies are less risky given their balance sheets and proven experience in successfully launching both manned and unmanned spacecraft to any number of orbits,” concluded Citi’s Gursky.

ARKX holds 35 stocks ranging in weights from 0.23% at the bottom to 8.23% at the top.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

Space is the final frontier, but investing there doesn’t need to be excessively risky. With active management, the ARK Space Exploration ETF (ARKX) can take some of the risk and volatility out of the space investing equation while potentially properly positioning investor to capitalize on emerging space trends.

Indeed, recent news flow regarding space exploration is encouraging for the long-term ARKX thesis. NASA’s Ingenuity helicopter recently navigated Mars with success. Elon Musk’s SpaceX landed an almost $3 billion contract with NASA. With a 3.08% gain over the past month, ARKX, the newest exchange traded fund from ARK, is proving positively correlated to positive news in the space industry.

That’s good news for patient investors considering ARKX because space investing is still in its formative stages.

“Bank of America projects the revenue generated by the global space industry to hit $1.4 trillion by 2030, from $414 billion in 2018,” writes Morningstar analyst Vikram Barhat. “As more countries rush to develop their space economies, the following companies stand to significantly profit due to their entrenched positions, technological expertise, and research and development capabilities.”

What’s Inside ARKX?

As an actively managed fund, ARKX doesn’t have abide by the restrictions of an index. While that may lead to a lineup with some holdings investors don’t readily associate with the space industry, it does provide robust exposure to large- and mega-cap disruptive growth fare.

For example, space operations are still relatively small parts of daily business at Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ: GOOG), but those stocks combine for almost 6% of ARKX’s roster, according to ARK data.

Nvidia (NASDAQ: NVDA) may lack space purity, at least for now, but it is in a great position at a time given that the PHLX Semiconductor Sector Index is higher by 15.25% year-to-date.

ARKX does offer direct aerospace exposure – appropriate for a space ETF – via some familiar, older companies, including Dow component Boeing (NYSE: BA) and Lockheed Martin (NYSE: LMT).

Since its 1964 entry into the space industry, Boeing “has maintained its position as a dominant player in space-related activities. Boeing is also the prime contractor for the Space Launch System core stage flight hardware, to be used for NASA’s upcoming Artemis lunar mission,” notes Morningstar’s Barhat.

Lockheed Martin is also a major player in the space satellite industry. Lockheed and Boeing are top 10 holdings in ARKX, combining for almost 8% of the fund’s roster.

For more on disruptive technologies, visit our Disruptive Technology Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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