PRICING SPACE INDUSTRY RISK
“An exchange-traded fund that could soon hit Wall Street will quite literally be out of this world. The ETF sponsor Procure ETF Trust earlier this week filed for two new funds, one of which is dedicated to outer space and the burgeoning economy related to the cosmos. The Procure Space ETF will hold companies that derive “substantial revenue from space-related activities,” including satellite-based companies, firms involved in rocket manufacturing and maintenance and space-based imagery and intelligence services. The fund’s construction, according to the filing, will divide companies into two categories: those that derive the majority of their revenue from space-related activities, and those that have involvement in the industry but other revenue streams outside of space. The first category will comprise 70% of the index’s weighting, the filing read.
The fund will charge an expense ratio of 0.75%, which is on the high end for a passively managed fund. The SPDR S&P Aerospace & Defense ETF XAR, -0.30% , a fund that will likely have some overlap with the new space fund, charges 0.35% of assets.
The filing didn’t list a ticker symbol that the fund would trade under if approved, nor did it indicate what companies might be included. S-Network Global Indexes, which created the S-Network Space Index, which the ETF will track, could not immediately be reached for a comment. In October, Morgan Stanley released what it called the “Space 20,” a list of companies that it wrote were “best exposed to the growth of the Global Space Economy.” While Morgan Stanley doesn’t appear to be affiliated with the Space ETF, the list could provide some insight into the kinds of companies that might be held.
The “Space 20” includes aerospace giant Boeing Co. BA, +0.57% , Northrop Grumman Corp NOC, -0.90% , United Technologies UTX, +0.47% and Lockheed Martin Corp. LMT, +0.16% which recently invested $300 million refreshing its array of satellites. Facebook Inc. FB, -0.02% and Alphabet Inc. GOOGL, -0.24% —the parent of Google—were also mentioned, as part of a broad play related to internet and space.
The global space industry is currently valued at about $350 billion, according to data from the Satellite Industry Association cited by Morgan Stanley researchers. The investment bank estimated that the industry could grow to $1.1 trillion by 2040, although it warned that due to “significant execution risk,” the range of potential outcomes was extremely wide. In the low end of its range, it sees the industry growing to $600 billion over the next 20 or so years, while the bull case suggested an industry value of $1.75 trillion.
Procure’s ETF filing listed “space industry risk” as one of the offering’s principal risks. “The exploration of space by private industry and the harvesting of space assets is a business based in future and is witnessing new entrants into the market,” the filing read. “This is a global event with a growing number of corporate participants looking to meet the future needs of a growing global population. Therefore, investments in the Fund will be riskier than traditional investments in established industry sectors and the growth of these companies may be slower and subject to setbacks as new technology advancements are made to expand into space.” Procure also filed for the Procure Advanced Global Warming ETF, which will hold companies “that support the reduction of global warming and the production of alternative energy and uses.”
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